Two British pound (£) put options are available with exercise prices of $1.60 and $1.62. The premiums associated with these options are $.03 and $.04 per unit, respectively.
a. Describe how a bull spread can be constructed using these put options. What is the difference between using put options versus call options to construct a bull spread?
b. Complete the following worksheet.

c. At option expiration, the spot rate of the pound is $1.60. What is the bull spreader€™s total gain or loss?
d. At option expiration, the spot rate of the pound is $1.58. What is the bear spreader€™s total gain orloss?

Transcribed Image Text:

Value of British Pound at Option Expiration $1.56$1.60 $1.62 $1.67 Put $1.60 Put $1.62 Net