Consider the following call and put option prices on Marimba Motors. For S = 50, r = 5%,
and  = 50%, we have
Calls Puts

Strike	3 month	9 month	3 month	9 month
40	11.52	14.63	1.03	3.16
50	5.26	9.36	4.64	7.52
60	2.01	5.85	11.26	13.64

Answer the following questions.
a. Consider writing a 9-month 40 strike price call option on Marimba. Assuming the
position is naked (the writer doesn’t own the underlying assets), what are the (1)
maximum profit, (2) maximum loss, and (3) breakeven price?

b. Consider a married put position where the investor purchases the stock and a 3-month 40
strike price put. What are the (1) initial cost, (2) maximum profit, (3) maximum loss, and
(4) breakeven price?

c. Consider a “buy-write” covered call strategy where the investor purchases the stock and
writes a 9-month 60-strike price call option. What are the (1) initial cost, (2) maximum
profit, and (3) breakeven price?

d. Consider a bull call spread where the investor purchases the 3-month 40-strike price call
and writes the 3-month 60-strike price call. What are the (1) initial cost, (2) maximum
profit, and (3) breakeven price?

e. Consider a straddle position where the investor purchases the 3-month at-the-money call
and put options. What are the (1) maximum profit if the stock price falls to zero, (2)
maximum loss, and (3) breakeven prices?

Answer rating: 100% (QA)

a The maximum profit ... View the full answer