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You are concerned that Trump administration tariffs on China’s exports will provoke further retaliatory tariffs, and...

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Finance

You are concerned that Trump administration tariffs onChina’s exports will provoke further retaliatory tariffs, and mayspur a trade war. You want to bet on this price change using avertical bear spread. Use the calls below on November 2018 SoybeanFutures below to bet on lower prices and reduce the risk of loss. •Call with a strike price of $10.40 and a premium of $0.45 • Callwith a strike price of $12.40 and a premium of $0.16

a) Explain the position you would take and calculateyour maximum loss and maximum profit.

b) Draw the payoff diagram for the verticalspread.

Answer & Explanation Solved by verified expert
4.4 Ratings (751 Votes)
In this example C Call premium S Spot price on expirationK Strike PriceVertical bear spread will be achieved bySelling a call with a lower strike price andBuying a call with a higher strike pricePart aIn our case the    See Answer
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Transcribed Image Text

You are concerned that Trump administration tariffs onChina’s exports will provoke further retaliatory tariffs, and mayspur a trade war. You want to bet on this price change using avertical bear spread. Use the calls below on November 2018 SoybeanFutures below to bet on lower prices and reduce the risk of loss. •Call with a strike price of $10.40 and a premium of $0.45 • Callwith a strike price of $12.40 and a premium of $0.16a) Explain the position you would take and calculateyour maximum loss and maximum profit.b) Draw the payoff diagram for the verticalspread.

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