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

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Finance

The common stock of a company is selling today for $53.69. Call options on the company expiring in 1-month with strike prices of $49 and $56 are selling for $4.80 and $0.36, respectively.

  1. How would you form a bull call spread with the two options (state what kind of options you would buy or sell at what strike price to form a call spread)? What is the cost of each spread?
  2. If you have $890 on hand, how many spread contracts (each contract=100 options) can you buy? Remember that you cannot buy fractional contracts.
  3. Find the total amount of profit for a single bull call spread created using the two calls described above when for stock prices are at 45, 47.5, 50, 52.5, 55, 57.5 at expiration.
  4. What is the maximum and minimum profit for a bull call spread created using the two calls described above?
  5. Draw profits of both the call options along with the profit diagram of the bull call spread. Clearly label each axis and indicate which line is what.

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