Read the following excerpt and draw a profit diagram based on the option positions. Show all...

Read the following excerpt and draw a profit diagram based on the option positions. Show all the critical points on the diagram. For example, the intercepts on axes, maximum profit or maximum loss.

Shares of a gold producer rose 1.5% today to yet another all-time high of $116.43. We observed activity in the June 2012 contract by one investor who initiated an option strategy on the stock. It appears the trader purchased 13,265 calls at the June $125 strike for an average premium of $5.95 each, against the sale of the same number of calls at the higher June $150 strike for $2.10 apiece…

Please provide formula and calculation step thanks

Expert Solution

This is how we calculate the payoffs.

Formula	IF(Price on expiry<=125,-132655.95,-132655.95+(Price on expiry-125)*13265)	IF(Price on expiry<=150,+132652.10,+132652.10-(Price on expiry-150)*13265)
	A	B	A+B
Price on expiry	Payoff from call bought	Payoff from call sold	Total Payoff
116.43	-78926.75	27856.5	-51070.3
120	-78926.75	27856.5	-51070.3
121	-78926.75	27856.5	-51070.3
122	-78926.75	27856.5	-51070.3
123	-78926.75	27856.5	-51070.3
124	-78926.75	27856.5	-51070.3
125	-78926.75	27856.5	-51070.3
126	-65661.75	27856.5	-37805.3
127	-52396.75	27856.5	-24540.3
128	-39131.75	27856.5	-11275.3
129	-25866.75	27856.5	1989.75
130	-12601.75	27856.5	15254.75
131	663.25	27856.5	28519.75
132	13928.25	27856.5	41784.75
133	27193.25	27856.5	55049.75
134	40458.25	27856.5	68314.75
135	53723.25	27856.5	81579.75
136	66988.25	27856.5	94844.75
137	80253.25	27856.5	108109.8
138	93518.25	27856.5	121374.8
139	106783.25	27856.5	134639.8
140	120048.25	27856.5	147904.8
141	133313.25	27856.5	161169.8
142	146578.25	27856.5	174434.8
143	159843.25	27856.5	187699.8
144	173108.25	27856.5	200964.8
145	186373.25	27856.5	214229.8
146	199638.25	27856.5	227494.8
147	212903.25	27856.5	240759.8
148	226168.25	27856.5	254024.8
149	239433.25	27856.5	267289.8
150	252698.25	27856.5	280554.8
151	265963.25	14591.5	280554.8
152	279228.25	1326.5	280554.8
153	292493.25	-11938.5	280554.8
154	305758.25	-25203.5	280554.8
155	319023.25	-38468.5	280554.8
156	332288.25	-51733.5	280554.8
157	345553.25	-64998.5	280554.8
158	358818.25	-78263.5	280554.8
159	372083.25	-91528.5	280554.8
160	385348.25	-104793.5	280554.8
161	398613.25	-118058.5	280554.8
162	411878.25	-131323.5	280554.8
163	425143.25	-144588.5	280554.8
164	438408.25	-157853.5	280554.8
165	451673.25	-171118.5	280554.8
166	464938.25	-184383.5	280554.8
167	478203.25	-197648.5	280554.8
168	491468.25	-210913.5	280554.8
169	504733.25	-224178.5	280554.8
170	517998.25	-237443.5	280554.8

And we can show the payoff as per the following graph

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