The options for Microsoft (stock price $25.84) are trading at the following prices: Strike Calls Puts 22.50
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Question:
The options for Microsoft (stock price $25.84) are trading at the following prices:
Strike | Calls | Puts |
22.50 | 3.40 | 0.10 |
25.00 | 1.25 | 0.30 |
27.50 | 0.15 | 1.80 |
a. Create a bull call spread based on an outlook that Microsoft will be over 27.50 at expiration. Include the cost of the trade and maximum profit or loss at expiration
b. Create a bear put spread based on an outlook that Microsoft with be under 25.00 at expiration.
Note: Could you please explain the process/formulas that go behind creating a bull and bear spread please?
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