Question
On 16 September 2021, Commonwealth Bank of Australia (CBA) shares were trading at $102.00 while the November 2021 CBA Call and Put options with exercise
On 16 September 2021, Commonwealth Bank of Australia (CBA) shares were trading at $102.00 while the November 2021 CBA Call and Put options with exercise prices of $102.00 were trading at $5.10 and $5.20, respectively. As an options trader, you firmly believe that the share price will decrease dramatically in the near future given the upcoming royal commission into the financial services industry. Given this information and the fact that the standard option contract size is 100 shares per contract, outline an option trading strategy in either the Call or the Put that will profit from a decrease in CBA share price and demonstrate that the strategy is profitable if the price of a CBA share is $110.00 on the options expiry date (i.e. in November 2021).
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