4- Consider two call options on the same underlying stock and same expiration date. You buy...

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4- Consider two call options on the same underlying stock and same expiration date. You buy the call with X=40, and sell the

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Answer 1

Answer #1

Q1:

if stock price =32 ; X=40 strike price long call will not be exercised and there wont be any loss from X=50 short call option;

Hence payoff=0

Q2:

Lowest payoff = 40-50 = -10 $

Q3:

Lowest payoff is possible if the stock price climbs up above 50 $; After this price any increase in payoff due to 40 strike price long option will be offset by decrease in payoff due to 50 strike price short call option

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Answer 2

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