Chapter 15, Problem 22PS

Consider the following options portfolio: You write a June $\text{2}0\text{17}$ expiration call option on Microsoft with exercise price $\$\text{72}$ . You also write a June expiration Microsoft put option with exercise price $\$\text{7}0$ . $\left(\text{LO 15}-\text{2}\right)$
a. Graph the payoff of this portfolio at option expiration as a function 0f the stock price at that time.
b. What will be the profit/loss on this position if Microsoft is selling at $\$\text{7}0$ on the option expiration date? What if it is selling at $\$\text{74}$ ? Use option prices from Figure $15.1$ to answer this question.
c. At what two stock prices will you just break even on your investment?
d. What kind of “bet” is this investor making; that is, what must this investor believe about the stock price in order to justify this position?