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In time 0, an investor takes a calendar spread by selling two-year European call option and buyingthree-year European call option. These two options have the
In time 0, an investor takes a calendar spread by selling two-year European call option and buyingthree-year European call option. These two options have the same strike price of $80 and are for thesame stock that pays no dividends. The two-year option sells for $5 and the three-year option sells for$7. Two years later, the stock price turns out to be $90. The risk-free rate is 2% per annum. What isthe minimum of the profit from this strategy? (We assume that we sell the longer-term option in yeartwo) [5 points]
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