In 2007 April paper Q3 I don't understand why the the right hand side of the expiry graph (solid line of the ASET solution) should go below zero. If it goes below zero, that means there is an initial cost for setting up the portofolio. The inticial cost should be the net premium paid for construction the portoflio at the outset, which is also the net value of each option at time 0 and when the index price is 6000. This implies that the price for the two 5500 put - price for the 5000 put < 0 However, It goes on to say that to plot the dotted line (graph for now), when the index equals to 6000, the net profit at this point is zero. So that price for the two 5500 put - price for the 5000 put = 0 Isn't that contradictory? Am I miss understand the whole thing?
