In all questions like this, there is rarely any subtle meaning behind it
all. Simply plot a few points and connect the dots. Take Figure E for
example. If the stock price is zero, then you have to repay the 100
that you borrowed, that's -100. The 2 shares of stock are worth zero
and the call option you sold is zero, so the total is -100. If the
stock price is 100, then the borrowing is again -100, the two shares are
200 and the option payoff is zero, for a total of 100. Then if stock is
101, then borrowing is -100, stock is 202 and the option is -1, so
that's 101. Connect the three dots and you are done.
The only thing to be careful about in these cases is to plot points at,
above and below the exercise prices of the options. That's where all
the action will be. So if there are several options involved in a
particular strategy, be sure to plot points at each exercise price and
at points in between.
The search for additional meaning is pointless. After a bit of practice
though, you should be able to start to see some patterns.
> -----Original Message-----
> From: Shenaz_Keshwani@mercer.com [SMTP:Shenaz_Keshwani@mercer.com]
> Sent: Monday, April 19, 1999 2:58 PM
> To: studygroup5b@lists.casact.org; Richard Goldfarb
> Subject: 5B, Fall 94, #28
>
>
> Chapter 20/21
>
> What do figures B and E represent. I have tried to draw the figures
> in the
> attached file.
>
> Thanks
>
>
> Shenaz << File: MS Excel spreadsheet >>