The question asks for the profit and loss diagram - not the payoff diagram.
Since we purchase a call option with longer maturity than we sell, shouldn't the P&L for extreme movements be a negative constant (the different between the premiums)?
Also, since it's at the money, shouldn't the value for "P&L now" be 0 at 4500 (just the reverse of the position taken) - and decrease as it moves slightly in the money (as delta of the portfolio is negative, since longer dated maturities have smaller deltas) before eventually converging back to the net premium outflow value?
Thanks.
Last edited: Mar 22, 2013