34 Currency bull spreads and bear spreads. A call option on dollars exists with a strike price of £0.64 and a premium of £0.04 per unit. Another call option on dollars has a strike price of £0.66 and a premium of £0.03 per unit. (See Appendix 5B in this chapter.)

a Complete the worksheet for a bull spread below.

b What is the breakeven point for this bull spread?
c What is the maximum profit of this bull spread?
What is the maximum loss?
d If the dollar spot rate is £0.65 at option expiration, what is the total profit or loss for the bull spread?
e If the dollar spot rate is £0.63 at option expiration, what is the total profit or loss for a bear spread?

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Value of US dollar at option expiration 0.58 Call@0.64 Call@0.66 Net 0.64 0.66 0.72