Question 2

Suppose the shares of Mantan Madina Berhad (MMB) is being in the uptrend and believe that it will be in this direction in the short term. Two call options on this stock, both having same expiry dates, but have strike prices K₁ = $30 and K₂ = $42, and premiums c₁ = $6 and c₂ = $4 respectively.

As an investor who constructed thebull spread, the investormust have certain expectations about the future behavior of the underlying asset's price.

a. If the current underlying stock price is $30, describe what is the expectations as regards the future behavior of the underlying stock price. b. From the option writer's point of view what would consider the call option's future behavior of the underlying stock price?

Answer rating: 100% (QA)

a As an investor who has constructed a bull spread using call options the expectation is that the pr... View the full answer