Suppose you executed the following trade (strategy) on NPR Ltd using two exercise prices:

Long 1 NPR call (X=R50) @ R8.40

Short 2 NPR calls (X =R60) @ R3.34 each

All options have identical expiration dates

a. What is the cost of initiating such a strategy? [3]

b. Graphically depict a fully-labelled Profit and Loss diagram of the strategy highlighting the break- even points, maximum potential profit and maximum potential loss. [15]

c. Under what market conditions will this strategy generally make sense? Explain Does the holder of this position have limited or unlimited liability? Explain.

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a What is the cost of initiating such a strategy 3 Th... View the full answer