Draw a payoff diagram for the portfolio of options

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Reference no: EM131316690

Several call options on Cuban Cigars Inc. are available for trading. The expiration date, strike price, and current premium for each of these options appears below.

Strike	Expiration	Premium
$40	July	$6
$45	July	$3.50
$50	July	$1.75

An investor decides to purchase one call, with a $40 strike, and one, with a $50 strike. At the same time, the investor sells two of the calls, with a $45 strike price. Draw a payoff diagram for this portfolio of options.

Your diagram should have two lines, one showing the portfolio's payoff on a gross basis, and one showing the payoff net of the cost of forming the portfolio.

Reference no: EM131316690

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