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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?

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Answer #1

Maximum potential profit is when price on maturity is $30

Option with $25 strike price will be exercised

Profit = 30-25-2+1 = $4

Hence, maximum potential profit = $4

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