You have the following data on call prices covering the same asset with the same expiration date. Strike Price. Call Option Price $40 -----------$10.50 $45-------------$6.50 $50-------------$3.00 a)Suppose an investor purchases one option with X = $40 and one with X = $50, but sells two options with X = $45. Assuming no transaction costs, in what range of asset prices does the investor make a positive net profit? b)Based on the above strategy, what is the investor’s maximum potential dollar profit and maximum potential dollar loss
You have the following data on call prices covering the same asset with the same expiration date. Strike Price. Call Option Price $40 -----------$10.50 $45-------------$6.50 $50-------------$3.00 a)Suppose an investor purchases one option with X = $40 and one with X = $50, but sells two options with X = $45. Assuming no transaction costs, in what range of asset prices does the investor make a positive net profit? b)Based on the above strategy, what is the investor’s maximum potential dollar profit and maximum potential dollar loss
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You have the following data on call prices covering the same asset with the same expiration date.
Strike Price. Call Option Price
$40 -----------$10.50
$45-------------$6.50
$50-------------$3.00
a)Suppose an investor purchases one option with X = $40 and one with X = $50, but sells two options with X = $45. Assuming no transaction costs, in what range of asset prices does the investor make a positive net profit?
b)Based on the above strategy, what is the investor’s maximum potential dollar profit and maximum potential dollar loss
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