Assume an investor buys a call on Acme Corp, stock with a strike price of $40 for
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Question:
Assume an investor buys a call on Acme Corp, stock with a strike price of $40 for $3.95 and buys another call for $1.07 with a strike price of $50. The investor also sells (writes)
two calls for $1.68 with a strike price of $45. Acme Corp. is currently trading at $46.
- What is the maximum loss and maximum gain possible?
- All options expire in one year, and the risk free rate is 6%. If a put option with a strike price of $50 was trading at $3.98, what is the arbitrage opportunity, and what is the profit?
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