A strangle is a portfolio consisting of a -put and a -call with . Graph the payoff diagram. Assume that the options are European and have the same underlying asset and expiration date T. Consider two...

A strangle is a portfolio consisting of a
-put and a
-call with
. Graph the payoff diagram. Assume that the options are European and have the same underlying asset and expiration date T.

Consider two call options with the same underlying and same maturity T, one with price C0 and strike price K, the other with price C’₀
and strike price K’ > K. Give a careful arbitrage argument to show that