Question
Here are some data on DCRB options as of May 14. Current stock price is $125.94, expirations are May 21, June 18, and July 16,
Here are some data on DCRB options as of May 14. Current stock price is $125.94, expirations are May 21, June 18, and July 16, and the risk-free rates are 0.0447, 0.0446, and 0.0453 respectively.
CALLS PUTS
Exercise Price | May | June | July | May | June | July |
120 | 8.75 | 15.40 | 20.90 | 2.75 | 9.25 | 13.65 |
125 | 5.75 | 13.50 | 18.60 | 4.60 | 11.50 | 16.60 |
130 | 3.60 | 11.35 | 16.40 | 7.35 | 14.25 | 19.65 |
Draw a payoff diagram, and calculate the maximum loss, maximum gain, and breakeven for each of the following strategies.
Question 1: A call bull spread strategy: long the June 125 and short the June 130 calls.
Question 2: A put bear spread: long the June 130 put and short the June 125 put.
Question 3: Buy the stock at $125.94, buy the July 120 put for $13.65, and sell a call that has the same price, $13.65. But no such call exists! It turns out that I can create such a call if its exercise price were $136.165. [Hint: this is a collar.]
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