Problem 2:

Using Table 4.8 on page 107 of the textbook compute the profit of the following:

Sell Two 440 strike calls and buy two 440 strike puts. Calculate the Payoff and Profit. No need to draw any graphs just set up as a table. (Show calculation!)

TABLE 4.8 Call and put premiums for gold options. Strike Price 440 420 400 Put Premium 21.54 8.77 2.21 Call Premium 2.49 8.77 21.26 Note: These prices are computed using the Black formula for options on futures, with a futures price of $420, effective annual interest rate of 5%, volatility of 5.5%, and 1 year to expiration