Draw a Graph That Shows the Payoff and Profit to the Holder

question 39

Essay

Draw a graph that shows the payoff and profit to the holder of a call option at expiration.Draw another graph that shows the payoff to the holder of a put option at expiration.Draw a third graph that shows the payoff of a long straddle at expiration.Be sure to label the axes and all other relevant features of the graphs.

---

Definitions:

Security Returns

The gains or losses from investing in a financial security, usually expressed as a percentage of the investment's initial cost.

Macro Events

Large-scale events that affect the broad economy or financial markets, including political changes, natural disasters, or widespread economic shifts.

Firm-Specific Events

Events that affect a particular company directly, such as earnings reports, mergers, or product launches, which can impact the company's stock price independent of market trends.

Portfolio Risk

The level of uncertainty or potential financial loss inherent in an investment portfolio.