You Are Long Both a Put Option and a Call

question 33

Essay

You are long both a put option and a call option on Rockwood stock with the same expiration date.The exercise price of the call option is $40 and the exercise price of the put option is $30.Graph the payoff of the combination of options at expiration.

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Definitions:

Theoretical Arguments

Reasoning based on hypothetical constructs and principles, often used to explain or predict phenomena beyond empirical observations.

Experimental Data

Data obtained through deliberate manipulation and observation of variables in controlled conditions to study the effects of interventions or treatments.

Probability Theory

A mathematical framework for quantifying uncertainty, focusing on the calculation and interpretation of probabilities.

Outcome

The result or consequence of an action, experiment, or process, often used in the context of statistical experiments to describe possible results.