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Problem 2 (25 points) Consider a bearish spread purchasing a call with exercise price X2 and selling a call with exercise price X1 , with
Problem 2 (25 points) Consider a bearish spread purchasing a call with exercise price X2 and selling a call with exercise price X1 , with X2 greater than X1. This strategy is similar to the bullish spread we've learned in class. Based on above information, answer the following questions. (a) Construct a table for payoffs of bearish spread. (b) Draw the payoff diagram for this strategy as a function of the stock price at expira- tion. You need to mark some key points on the x-axis and y-axis. (c) Briefly describe the difference between bearish spread and bullish spread. Problem 2 (25 points) Consider a bearish spread purchasing a call with exercise price X2 and selling a call with exercise price X1 , with X2 greater than X1. This strategy is similar to the bullish spread we've learned in class. Based on above information, answer the following questions. (a) Construct a table for payoffs of bearish spread. (b) Draw the payoff diagram for this strategy as a function of the stock price at expira- tion. You need to mark some key points on the x-axis and y-axis. (c) Briefly describe the difference between bearish spread and bullish spread
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