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The following prices are available for call options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35.
The following prices are available for call options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining. The Black-Scholes model was used to obtain the prices.
| Calls |
|
Strike | March | |
45 | 6.84 | |
50 | 3.82 | |
55 | 1.89 |
Construct a bull money spread using the March 45 and 50 calls. Hold the position until the options expire. Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
- What is the maximum profit on the spread?
- What is the maximum loss on the spread?
- What is the breakeven stock price?
- What is the profit if the stock price at expiration is $47?
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