Currency Bull Spreads and Bear Spreads A call option on British pounds () exists with a strike
Question:
Currency Bull Spreads and Bear Spreads A call option on British pounds (£) exists with a strike price of $1.56 and a premium of $.08 per unit. Another call option on British pounds has a strike price of $1.59 and a premium of $.06 per unit. (See Appendix B in this chapter.)
a. Complete the worksheet for a bull spread below.
VALUE OF BRITISH POUND AT OPTION EXPIRATION
$1.50 $1.56 $1.59 $1.65 Call @ $1.56 Call @ $1.59 Net
b. What is the break-even point for this bull spread?
c. What is the maximum profit of this bull spread?
What is the maximum loss?
d. If the British pound spot rate is $1.58 at option expiration, what is the total profit or loss for the bull spread?
e. If the British pound spot rate is $1.55 at option expiration, what is the total profit or loss for a bear spread?
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