Problem: Business and Finance
The following prices are available for call and put options on a stock priced at $50. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices.
|
|
Calls
|
Putts
|
|
Strike
|
March
|
June
|
March
|
June
|
|
45
|
6.84
|
8.41
|
1.18
|
2.09
|
|
50
|
3.82
|
5.58
|
3.08
|
4.13
|
|
55
|
1.89
|
3.54
|
6.08
|
6.93
|
Use this information to answer the following questions. Assume that each transaction consists of one contract (100 options) unless otherwise indicated.
Consider a bull money spread using the March 45/50 calls.
o How much will the spread cost?
o What is the maximum profit on the spread?
o What is the maximum loss on the spread?
o What is the profit if the stock price at expiration is $47?
o What is the breakeven point?
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.