I am sorry if that hurts you, I just meant to say that I am not being pedantic.
The notes talk of payoffs and not profit/loss. When we plot the payoff graph of any position,
we plot the payoff at expiry against the underlying asset price at expiry{S(T)}. So if you combine the payoffs from a long call and short put (with same strike and tenor), you get the payoff from a long forward and we must plot f{S(T)} = S(T) - K against S(T), a line with slope 1 and through point (K,0). Notes say that the graph for combined position will represent the payoff from the underlying aset itself. The graph for the payoff from the underlying asset should plot
f{S(T)} = S(T), a line with slope 1, through (0,0).
Last edited by a moderator: Feb 8, 2019