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 a call and put option on the same underlying asset with the same expiration date will create a V-shaped diagram with the kink at the strike price of the options. At the strike price, the value of the call and put option will be equal and cancel each other out, resulting in a flat line. Above the strike price, the call option will be profitable and below the strike price, the put option will be profitable.

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