The common stock of a company is selling today for $53.69. Call options on the company...

50.1K

Verified Solution

Question

Finance

The common stock of a company is selling today for $53.69. Calloptions on the company expiring in 1-month with strike prices of$49 and $56 are selling for $4.80 and $0.36, respectively.
How would you form a bull call spread with the two options(state what kind of options you would buy or sell at what strikeprice to form a call spread)? What is the cost of each spread?
If you have $890 on hand, how many spread contracts (eachcontract=100 options) can you buy? Remember that you cannot buyfractional contracts.
Find the total amount of profit for a single bull call spreadcreated using the two calls described above when for stock pricesare at 45, 47.5, 50, 52.5, 55, 57.5 at expiration.
What is the maximum and minimum profit for a bull call spreadcreated using the two calls described above?
Draw profits of both the call options along with the profitdiagram of the bull call spread. Clearly label each axis andindicate which line is what.

Answer & Explanation Solved by verified expert

4.1 Ratings (545 Votes)

A bull call spread would be formed by buying the 49 call optionand selling the 56 call optionCost of each spread premium paid on 49 call option See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The common stock of a company is selling today for $53.69. Calloptions on the company expiring in 1-month with strike prices of$49 and $56 are selling for $4.80 and $0.36, respectively.How would you form a bull call spread with the two options(state what kind of options you would buy or sell at what strikeprice to form a call spread)? What is the cost of each spread?If you have $890 on hand, how many spread contracts (eachcontract=100 options) can you buy? Remember that you cannot buyfractional contracts.Find the total amount of profit for a single bull call spreadcreated using the two calls described above when for stock pricesare at 45, 47.5, 50, 52.5, 55, 57.5 at expiration.What is the maximum and minimum profit for a bull call spreadcreated using the two calls described above?Draw profits of both the call options along with the profitdiagram of the bull call spread. Clearly label each axis andindicate which line is what.