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Calendar Spread An investor started a calendar spread in October 2019 with a short position in 1-year European call and a long position in 2-year

Calendar Spread

An investor started a calendar spread in October 2019 with a short position in 1-year European call and a long position in 2-year European call. Both calls are on the same non-dividend-paying stock and have the strike price of $120. At that time, the price of 1-year call was $5 and the price of 2-year call was $8. One year has passed, and the investor is now about to close all of the positions. The current stock price is $150 and the risk-free interest rate is 3% per annum. What is smallest and largest possible profit from this calendar spread? (Hint: Consider the lower/upper bound for the option price.)

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