You are given the following: Price of the stock $18 Price of a three-month call at $20

Question:

You are given the following:

Price of the stock $18 Price of a three-month call at $20 2 Price of a three-month call at $15 5

a) What is the profit (loss) at the expiration date of the options if the price of the stock is

$14, $20, or $25 and if the investor buys the option with the $20 strike price and sells the other option?

b) Compare the profit (loss) from this strategy with shorting the stock at $18.

c) What is the profit (loss) at the expiration date of the options if the price of the stock is

$14, $20, or $25 and if the investor buys the option with the $15 strike price and sells the other option?

d) Compare the profit (loss) from this strategy with buying the stock at $18.

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