Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1 . You are bearish on a stock and are considering entering into a bear spread option strategy. If you go long a put with

1. You are bearish on a stock and are considering entering into a bear spread option strategy. If you go long a put with a strike price of $100 for $2.67 and go short a put with a $95 strike for $0.89. Your gross payoff from the strategy will _______ and your up front cost will ________.
a. Not be capped, increase to $3.56
b. Capped at $5, decrease to $1.78
c. Not be capped, decrease to $1.78
d. Capped at $5, increase to $3.56
2.You are bullish on a stock and are considering entering into a bull spread option strategy. If you go long a call with a strike price of $100 for $3.09 and go short a call with a $105 strike for $1.21. Your gross payoff from the strategy will _______ and your up front cost will ________.
a. Not be capped, increase to $3.56
b. Capped at $5, increase to $3.56
c. Not be capped, decrease to $1.88
d. Capped at $5, decrease to $1.88

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets and Institutions

Authors: Anthony Saunders, Marcia Cornett

6th edition

9780077641849, 77861663, 77641841, 978-0077861667

More Books

Students also viewed these Finance questions

Question

Distinguish between the manifest and latent content of dreams.

Answered: 1 week ago