A bull spread is an options strategy that profits from a mod- erate rise in the...

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A bull spread is an options strategy that profits from a mod- erate rise in the price of the underlying security. A bull spread can be constructed using either put or call options. If it is constructed using calls, it is called a bull call spread. Alternatively, if the bull spread is constructed using puts, it is called a bull put spread. Salesforce stock trades at $191.27. You want to enter into a bull call spread with a one-year expiration which has the following payoff at maturity (1) Bull Spread Payoff a S₁-200 50 if S₂ < 200 if 200 ≤ S₁ ≤ 250 if S₁ > 250 Here S₁ is the price of Salesforce stock in one year and the continuously compounded risk-free rate is 2%. You may buy and sell the following options with a maturity of one year Call Strike Put 25.95 200 29.28 9.20 250 70.90 (a) Compute the break-even price at maturity of a bull call spread strategy with the payoff given in equation (1). (b) What is the break-even price of a bull put spread strategy which has a similar payoff structure to the bull call spread in (a)? (c) Which strategy (bull call spread or bull put spread) is more advantageous if you want to enter into a long position? A bull spread is an options strategy that profits from a mod- erate rise in the price of the underlying security. A bull spread can be constructed using either put or call options. If it is constructed using calls, it is called a bull call spread. Alternatively, if the bull spread is constructed using puts, it is called a bull put spread. Salesforce stock trades at $191.27. You want to enter into a bull call spread with a one-year expiration which has the following payoff at maturity (1) Bull Spread Payoff a S₁-200 50 if S₂ < 200 if 200 ≤ S₁ ≤ 250 if S₁ > 250 Here S₁ is the price of Salesforce stock in one year and the continuously compounded risk-free rate is 2%. You may buy and sell the following options with a maturity of one year Call Strike Put 25.95 200 29.28 9.20 250 70.90 (a) Compute the break-even price at maturity of a bull call spread strategy with the payoff given in equation (1). (b) What is the break-even price of a bull put spread strategy which has a similar payoff structure to the bull call spread in (a)? (c) Which strategy (bull call spread or bull put spread) is more advantageous if you want to enter into a long position?

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The image contains a description of a bull spread strategy using options along with a table of option prices with strike prices and a set of questions related to this strategy The payoff for the bull ... View the full answer