1.Suppose you purchase one XYZ August 100 call contract at $6.5 and write one XYZ August 110 call contract at $0.5.

a)What is the maximum potential profit of your strategy?

b)If, at expiration, the price of a share of XYZ stock is $105, what would be your profit?

c)What is the maximum loss you could suffer from your strategy?

d)What is the lowest stock price at which you can break even?2. Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $100. If the risk-free rate is 5%, the stock price is $103, and the put sells for $7.50, what should be the price of the call?

Answer rating: 100% (QA)

a To calculate the maximum potential profit of your strategy we need to consider the difference in strike prices and the initial cost of the options T... View the full answer