
a.
To draw: A payoff graph for the above said strategy at the option expiration date.
Introduction:
Payoff graph: It is supposed to be a graphical representation of potential outcomes of a strategy. The vertical axis depicts the
b.
To draw: A profit graph for the above said strategy.
Introduction:
Profit graph: It can also be called as risk graph. Profit graph is supposed to be visual depiction on possible outcomes of an options strategy on a graph. On the vertical axis, the profit/loss is depicted whereas the horizontal axis depicts the underlying stock price on expiration date.
c.
To compute: The break-even point for the above said strategy. Also, state whether the investor is bullish or bearish on the stock.
Introduction:
Bull spread: It is a concept used in the trading of options. It is supposed to be a bullish vertical spread options strategy where profit can be earned only when there is a moderate increase in the underlying asset’s price.
Bear spread: It is a concept used in the trading of options. Normally, an investor buys a contract with a high strike price and sells a contract when the strike price is low. By doing this, there is a chance to earn more profit with a decrease in price.

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Chapter 20 Solutions
Investments, 11th Edition (exclude Access Card)
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