To apply Bull Spread strategy, an investor buys for $3 a three-month call with a strike...
To apply Bull Spread strategy, an investor buys for $3 a three-month call with a strike price of $30 and sells for $1 a three-month call with a strike price of $35. The payoff from this bull spread strategy is $5 if the stock price is above $35 and zero if it is below $30. Please consider the different stock prices at expiration date to conduct a profit analysis and draw profit diagram.
Homework Answers
The payoff chart can be made as shown in excel;
| Payoff chart | ||||||
| Stock Prices ( S) | long call @ 30 strike price (L) | long call premium (Lp) | Short call @ 35 strike price (S) | short call premium (Sp) | Total payoff P( L+S) |
Total Profit (P+Lp+Sp) |
| 0 | 0 | -3 | 0 | 1 | 0 | -2 |
| 1 | 0 | -3 | 0 | 1 | 0 | -2 |
| 2 | 0 | -3 | 0 | 1 | 0 | -2 |
| 3 | 0 | -3 | 0 | 1 | 0 | -2 |
| 4 | 0 | -3 | 0 | 1 | 0 | -2 |
| 5 | 0 | -3 | 0 | 1 | 0 | -2 |
| 6 | 0 | -3 | 0 | 1 | 0 | -2 |
| 7 | 0 | -3 | 0 | 1 | 0 | -2 |
| 8 | 0 | -3 | 0 | 1 | 0 | -2 |
| 9 | 0 | -3 | 0 | 1 | 0 | -2 |
| 10 | 0 | -3 | 0 | 1 | 0 | -2 |
| 11 | 0 | -3 | 0 | 1 | 0 | -2 |
| 12 | 0 | -3 | 0 | 1 | 0 | -2 |
| 13 | 0 | -3 | 0 | 1 | 0 | -2 |
| 14 | 0 | -3 | 0 | 1 | 0 | -2 |
| 15 | 0 | -3 | 0 | 1 | 0 | -2 |
| 16 | 0 | -3 | 0 | 1 | 0 | -2 |
| 17 | 0 | -3 | 0 | 1 | 0 | -2 |
| 18 | 0 | -3 | 0 | 1 | 0 | -2 |
| 19 | 0 | -3 | 0 | 1 | 0 | -2 |
| 20 | 0 | -3 | 0 | 1 | 0 | -2 |
| 21 | 0 | -3 | 0 | 1 | 0 | -2 |
| 22 | 0 | -3 | 0 | 1 | 0 | -2 |
| 23 | 0 | -3 | 0 | 1 | 0 | -2 |
| 24 | 0 | -3 | 0 | 1 | 0 | -2 |
| 25 | 0 | -3 | 0 | 1 | 0 | -2 |
| 26 | 0 | -3 | 0 | 1 | 0 | -2 |
| 27 | 0 | -3 | 0 | 1 | 0 | -2 |
| 28 | 0 | -3 | 0 | 1 | 0 | -2 |
| 29 | 0 | -3 | 0 | 1 | 0 | -2 |
| 30 | 0 | -3 | 0 | 1 | 0 | -2 |
| 31 | 1 | -3 | 0 | 1 | 1 | -1 |
| 32 | 2 | -3 | 0 | 1 | 2 | 0 |
| 33 | 3 | -3 | 0 | 1 | 3 | 1 |
| 34 | 4 | -3 | 0 | 1 | 4 | 2 |
| 35 | 5 | -3 | 0 | 1 | 5 | 3 |
| 36 | 6 | -3 | -1 | 1 | 5 | 3 |
| 37 | 7 | -3 | -2 | 1 | 5 | 3 |
| 38 | 8 | -3 | -3 | 1 | 5 | 3 |
| 39 | 9 | -3 | -4 | 1 | 5 | 3 |
| 40 | 10 | -3 | -5 | 1 | 5 | 3 |
| 41 | 11 | -3 | -6 | 1 | 5 | 3 |
| 42 | 12 | -3 | -7 | 1 | 5 | 3 |
| 43 | 13 | -3 | -8 | 1 | 5 | 3 |
| 44 | 14 | -3 | -9 | 1 | 5 | 3 |
| 45 | 15 | -3 | -10 | 1 | 5 | 3 |
| 46 | 16 | -3 | -11 | 1 | 5 | 3 |
| 47 | 17 | -3 | -12 | 1 | 5 | 3 |
| 48 | 18 | -3 | -13 | 1 | 5 | 3 |
| 49 | 19 | -3 | -14 | 1 | 5 | 3 |
| 50 | 20 | -3 | -15 | 1 | 5 | 3 |
| 51 | 21 | -3 | -16 | 1 | 5 | 3 |
| 52 | 22 | -3 | -17 | 1 | 5 | 3 |
| 53 | 23 | -3 | -18 | 1 | 5 | 3 |
| 54 | 24 | -3 | -19 | 1 | 5 | 3 |
| 55 | 25 | -3 | -20 | 1 | 5 | 3 |
| 56 | 26 | -3 | -21 | 1 | 5 | 3 |
| 57 | 27 | -3 | -22 | 1 | 5 | 3 |
| 58 | 28 | -3 | -23 | 1 | 5 | 3 |
| 59 | 29 | -3 | -24 | 1 | 5 | 3 |
| 60 | 30 | -3 | -25 | 1 | 5 | 3 |
Total Profit (P+Lp+Sp) vs. Total payoff P( L+S) Total Profit (P+LP+Sp) - Total payoff P(L+S) 6 6 4 2 Total Profit (P+Lp+Sp) -2 20 40 60 Total payoff P( L+S)
Add Answer to:
To apply Bull Spread strategy, an investor buys for $3 a
three-month call with a strike...
3. Bullish Spread An investor implements a Bullish Spread strategy by doing the following: . buys...
3. Bullish Spread An investor implements a Bullish Spread strategy by doing the following: . buys for a 1-month European call at $4 premium with a strike price of $15 . sells for a 1-month European call at $2 premium with a strike price of $20 Draw the profit chart for this strategy. Make sure to indicate the break-even price, maximum possit profit, and minimum possible profit.
Consider an option strategy where the investor simultaneously buys one call with an exercise price of...
Consider an option strategy where the investor simultaneously buys one call with an exercise price of $120 and sells one call with an exercise price of $110 both with the same expiration date. Calculate the payoff of the strategy when spot price of the underlying is less than $110, between $110 and $120, and greater than $120 at expiration. Draw a payoff diagram for this strategy. What is the bet being made with this strategy?
NEED HELP!!! 6. You create a bull spread by buying a call with a strike price...
NEED HELP!!!
6. You create a bull spread by buying a call with a strike price of $26 and selling a call with strike price of $32. The prices of calls are $5 and $2 respectively. What is the net payoff from your position if the stock price is $55 at the expiration of the options? A. $1
Consider an option strategy where the investor simultaneously buys one call with an exercise price of...
Consider an option strategy where the investor simultaneously buys one call with an exercise price of $100, sells two calls with an exercise price of $110 and buys one call with an exercise price of $120 all with the same expiration date. Calculate the payoff of the strategy when spot price of the underlying is less than $100, between $100 and $110, between $110 and $120, and greater than $120 at expiration. Draw a payoff diagram for this strategy. What...
A long straddle is an option strategy in which the investor buys a call option and...
A long straddle is an option strategy in which the investor buys a call option and a put option with the same strike price and the same expiration date. If the strike is $40/share and the premiums for the call and the put are $4/share and $3/share respectively. Draw the profit loss diagram for the long straddle strategy. Repeat problem 1 for a short straddle (i.e. write a call and write a put).
An investor buys a ratio spread of 1-year European calls. He buys 1 call option with...
An investor buys a ratio spread of 1-year European calls. He buys 1 call option with strike price 40 and sells 2 call options with strike price 50. Option prices are Strike price Call option premium 40 10 50 5 Determine the investor's profit if the ending price of the underlying stock is (a) 45, (b) 55, (c) 65. (math Finance)
An investor buys a two-month XYZ call option contract with a $25 strike price, and sells...
An investor buys a two-month XYZ call option contract with a $25 strike price, and sells a two month XYZ call option contract with a $30 strike price. The premium is $2 for the call with the $25 strike price. The premium is $1 for the call with the $30 strike price. What is the maximum potential profit for this position?
An investor creates a butterfly spread by trading 9-month call options with strike prices of $115,...
An investor creates a butterfly spread by trading 9-month call options with strike prices of $115, $125, and $135. The prices of the options are $20.50, $14.50, and $9.50, respectively. What is the total payoff when the stock price in 9 months is $128? (Note: Total payoff does not include initial investment) $5 $7 $0 $10
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
Exercise 5 Consider the box spread strategy: It is a combination of a bull call spread...
Exercise 5 Consider the box spread strategy: It is a combination of a bull call spread and a bear put spread. Bull call spread: Buy one call with exercise E1 S50 and sell one call with exercise E2 $60. Bear put spread: Buy one put with exercise E2 - $60 and sell one put with exercise E1 -S50 a. Complete the table that shows the payoffs for all the positions above. b. Construct the diagram that shows the payoff for...
3. Bullish Spread An investor implements a Bullish Spread strategy by doing the following: . buys for a 1-month European call at $4 premium with a strike price of $15 . sells for a 1-month European call at $2 premium with a strike price of $20 Draw the profit chart for this strategy. Make sure to indicate the break-even price, maximum possit profit, and minimum possible profit.
NEED HELP!!!
6. You create a bull spread by buying a call with a strike price of $26 and selling a call with strike price of $32. The prices of calls are $5 and $2 respectively. What is the net payoff from your position if the stock price is $55 at the expiration of the options? A. $1
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
Exercise 5 Consider the box spread strategy: It is a combination of a bull call spread and a bear put spread. Bull call spread: Buy one call with exercise E1 S50 and sell one call with exercise E2 $60. Bear put spread: Buy one put with exercise E2 - $60 and sell one put with exercise E1 -S50 a. Complete the table that shows the payoffs for all the positions above. b. Construct the diagram that shows the payoff for...
Most questions answered within 3 hours.
-
Break-even time. Hampton Corporation’s research
and development department is presenting a proposal for new product
research....
asked 2 seconds from now -
At Lake Itasca in Minnesota, the Mississippi river is only 25.0
feet wide. If you are...
asked 1 minute ago -
A 2.0 μF parallel-plate air-filled capacitor is connected
across a 10 V battery.
(a) Determine the...
asked 11 minutes ago -
Write in Python This program:
1. Correct the compute_cells_state function which receives as
parameter an array...
asked 1 minute ago -
1. What is the difference in the output layer between a neural
network used for classification,...
asked 9 minutes ago -
ECO
2013 &
asked 15 minutes ago -
Insight refers to:
a.
Adaptive decision-making
b.
Credibility and trustworthness
c.
Understanding of one's problems
d....
asked 22 minutes ago -
Explain the differences between rights and permissions within
Windows. Define the principle of least privilege and...
asked 29 minutes ago -
A solid, frictionless cylindrical reel of mass M=5.00kg and
radius R=0.55m is used to draw water...
asked 31 minutes ago -
how do radio waves get emitted from Jupiter?
- do they come from radiation from planet...
asked 32 minutes ago -
The test statistic used in the F test for the equality of two
variances is calculated...
asked 43 minutes ago -
How does neutralisation of IL-6 trans-signaling affect the
autoimmune disease and inflammation? What if the trans-signaling...
asked 34 minutes ago