Question
Assume that the Amazon.com share price on January 1 is $ 725 and call options and put options are available with maturity in March. Option
Assume that the Amazon.com share price on January 1 is $ 725 and call options and put options are available with maturity in March. Option series A has an exercise price of $740 (SL), while series B has an exercise price of $760 (SH) for both calls and puts. The price of a call option with an exercise price of $740 is $35 (CL), and the price of a call option with an exercise price of $760 is $20 (CH). The put prices are $48 (PL) and $60 (PH) for options with exercise prices of $740 and $760, respectively.
Note: L represents the low, and H represents the high. CL and CH are the premiums on the calls,
and PL and PH are the premiums on the puts.
Change the stock prices at expiration by $5 from $600, to $880. Then determine the payoffs on the following strategies. You are supposed to create a spreadsheet to map the payoffs in relation the stock prices at expiration. 1. Bullish spread using Puts. In a bullish money spread, one will buy a put with the lower exercise price and write a put with the higher exercise price. 2. Bearish spread using Puts. In a bearish money spread, one would buy a put with a higher exercise price and write a put with a lower exercise price.
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