You purchase a call option and a put option on the shares of a company.The sticker price and expiration date for the options is equal.What is the best description of the combined payoff diagram for the combination of the two options?

Question

Quizplus · Accepted Answer

The combined payoff diagram for the combination of a call option and a put option with equal sticker price and expiration date is a V-shaped diagram with the kink at the strike price of the options. This is because the call option will have a payoff that increases as the stock price increases, while the put option will have a payoff that increases as the stock price decreases. At the strike price, both options will have zero payoff, resulting in the kink in the diagram.

You Purchase a Call Option and a Put Option on the Shares