Question 2 Suppose the shares of Mantan Madina Berhad (MMB) is being in the uptrend and believe
Question:
Question 2
Suppose the shares of Mantan Madina Berhad (MMB) is being in the uptrend and believe that it will be in this direction in the short term. Two call options on this stock, both having same expiry dates, but have strike prices K1 = $30 and K2 = $42, and premiums c1 = $6 and c2 = $4 respectively.
a. Describe clearly how could use these calls to create abull spread?
b. Construct a table that shows the payoff for each call option, the total payoff and profit for the bull spread.
c. Draw diagram showing the two call payoffs, and the profit achieved with thebull spread. Make sure include in diagram the correct change points at the ST prices along the horizontal axis, and the profits () associated with thebull spreadalong the vertical axis.
Introduction To Derivatives And Risk Management
ISBN: 9781305104969
10th Edition
Authors: Don M. Chance, Robert Brooks