Calls Puts Strike Jul Aug Oct Jul Aug Oct 160 6.00 8.10 11.10 0.75 2.75 4.50 165 2.70 5.25 8.10 2.40 4.75 6.75 170 0.80 3.25 6.00 5.75 7.50 9.00
Use this information for problems through 24. The stock was priced at 165.13. The expirations are July 17, August 21, and October 16. The continuously compounded risk-free rates associated with the three expirations are 0.0503, 0.0535, and 0.0571, respectively. The standard deviation is 0.21. a. Construct a bear money spread using the Octo- ber 165 and 170 calls. Hold the position until the options expire. Determine the profits and graph the results. Identify the breakeven stock price at expiration and the maximum and minimum profits. Discuss any special considerations asso- ciated with this strategy. b. Repeat problem "a.", but close the position on September 20. Use the spreadsheet to find the profits for the possible stock prices on September Generate a graph and use it to identify the approximate breakeven stock price.
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