Here are some data on DCRB options as of May 14. Current stockprice is $125.94, expirations are May 21, June 18, and July 16, andthe risk-free rates are 0.0447, 0.0446, and 0.0453respectively.
                                                         CALLS                                                                         PUTS
Exercise Price | May | June | July | May | June | July |
120 | 8.75 | 15.40 | 20.90 | 2.75 | 9.25 | 13.65 |
125 | 5.75 | 13.50 | 18.60 | 4.60 | 11.50 | 16.60 |
130 | 3.60 | 11.35 | 16.40 | 7.35 | 14.25 | 19.65 |
Draw a payoff diagram, and calculate the maximum loss, maximumgain, and breakeven for each of the following strategies.
Question 1: A call bull spread strategy: long the June 125 andshort the June 130 calls.
Question 2: A put bear spread: long the June 130 put and shortthe June 125 put.
Question 3: Buy the stock at $125.94, buy the July 120 put for$13.65, and sell a call that has the same price, $13.65. But nosuch call exists! It turns out that I can “create†such a call ifits exercise price were $136.165.   [Hint: this isa collar.]
