Student A constructs a K 1 -K 2 bull spread using call options, while Student B constructs
Question:
Student A constructs a K1-K2 bull spread using call options, while Student B constructs a K1-K2 bull spread using put options. All options are European with the same underlying asset and time to expiration.
Determine which of the following statements about these two bull spreads is/are correct.
I. Students A and B both have a short position with respect to the underlying asset.
II. Students A and B have the same payoff at expiration.
III. Students A and B have the same profit.
(A) I only
(B) II only
(C) III only
(D) I and III only
(E) The correct answer is not given by (A), (B), (C), or (D)
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C Central to the comparison between the call bull spread and the put bull spread is the payoff diagr...View the full answer
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