Question
You purchase one (1) call option with strike price 50 for $ 9 and write three (3) call options with strike 60 for $ 3.
1) Draw the payoff and profit table for this strategy at maturity.
2) When do you break-even (profit=0) at maturity?
3) What are your anticipations about the stock at maturity (when do you make money)?
4) Assume that you may purchase calls with strike price 70 for $ 1. How many options would you trade to prevent unbounded losses at maturity? What would be the maximum extent of your losses after the purchase?
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Authors: Ambrose Lo
1st Edition
0367734214, 978-0367734213
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