Refer to the data in the table below.
|
Strike Price
|
Put Price
|
|
$30
|
$1.00
|
|
35
|
3.50
|
|
40
|
6.50
|
Suppose an investor purchases one put, with X = $30, and one put, with X = $40, and sells two puts, with X = $35. Draw a payoff diagram for this position.
In your diagram, show the gross payoff (ignoring the costs of buying and selling the options) and the net payoff. In what range of stock prices does the investor make a net profit? What is the investor's maximum potential dollar profit and maximum potential dollar loss?