I am doing a CFAI Problem from “Application Of Derivatives - Omega”. I can’t write the whole problem out, but this is curious: The Profit On A Collar includes the difference between St and S0:
Profit Per Collar=St + max(0, x(put)-st) - max(0, st-x(call)) - putpremium - callpremium.
But the Bull Spread Payoff features only the options, not the difference of St-S0:
(HigherExercisePrice - LowerExercisePrice - LowerCallPremium + HigherCallPremium.
Why is this?
P.S. If you need me to write the problem out for context I can, but I was more interested in whether these two formulas are always different in this way.