Business, 24.05.2021 14:00, janiyagoldsmith
Today's price of three traded call options on the stock BackBay, all expiring in one month, are as follows:
Strike Price Option Price
$50 $7.50
$60 $3
$70 $1.50
You are considering buying a spread consisting of the following positions:
Buy 1 call at strike price of $50
Sell (write) 2 calls at strike price of $60
Buy 1 call at strike price of $70.
Assume the one-month interest rate is 0%.
Required:
a. Plot the payoff of your total position for different values of thestock price on the maturity date.
b. What is the dollar investment required to establish the spread?
c. For what stock prices on the maturity date will you be making anoverall profit?
Answers: 2
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Today's price of three traded call options on the stock BackBay, all expiring in one month, are as f...
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