McDonalds (symbol: MCD) is currently trading at $94 in May 21, 2015, and an investor decides to short 2 put options contracts on July '15 (strike price 90) for $1.10 per contract, and at the same time, to long 2 put options contracts at the same maturity (strike 100) for $8.0 per contract.

a) In doing this options strategy, what is the investor expectation on MCD stock price for the next 2 months? And, the name of this strategy?

b) What is the total cost of this strategy per contract and the total margin account required? Is there a debit or credit in the cash flow for the investor, and why?

c) Draw a complete P&L diagram (in $ per contract), indicating all calculations involved in each step of its construction.

d) What would be the resulting P&L of this trade position using the 2 contracts if the stock price of MCD reaches $87 at expiration? 

Answer rating: 100% (QA)

a The investor expects the stock price of MCD to remain between 90 an... View the full answer