# Question

Compute profit diagrams for the following ratio spreads:

a. Buy 950-strike call, sell two 1050-strike calls.

b. Buy two 950-strike calls, sell three 1050-strike calls.

c. Consider buying n 950-strike calls and selling m 1050-strike calls so that the premium of the position is zero. Considering your analysis in (a) and (b), what can you say about n/m? What exact ratio gives you a zero premium?

a. Buy 950-strike call, sell two 1050-strike calls.

b. Buy two 950-strike calls, sell three 1050-strike calls.

c. Consider buying n 950-strike calls and selling m 1050-strike calls so that the premium of the position is zero. Considering your analysis in (a) and (b), what can you say about n/m? What exact ratio gives you a zero premium?

## Answer to relevant Questions

In the previous problem we saw that a ratio spread can have zero initial premium. Can a bull spread or bear spread have zero initial premium? A butterfly spread? Why or why not? Construct a spreadsheet for which you can input up to five strike prices and quantities of put and call options bought or sold at those strikes, and which will automatically construct the total expiration payoff diagram for ...Construct payoff and profit diagrams for the purchase of a 950-strike S&R call and sale of a 1000-strike S&R call.Verify that you obtain exactly the same profit diagram for the purchase of a 950-strike S&R put and sale of a ...Suppose that firms face a 40% income tax rate on all profits. In particular, losses receive full credit. Firm A has a 50% probability of a $1000 profit and a 50% probability of a $600 loss each year. Firm B has a 50% ...Using the information in Table 4.9 about Scenario C: a. What is the expected quantity of production? b. Suppose you short the expected quantity of corn. What is the standard deviation of hedged revenue? •XYZ mines copper, ...Post your question

0