Question 1 Due to the bullish trend of the market in underlying stock of option which is
Question:
Question 1
Due to the bullish trend of the market in underlying stock of option which is trading at $75. Based on the market estimate you opt for one call option with strike price of $70andselling at $7.5, and one short call option with a strike price of $80and selling at $3. The expiration on both cases is 6 months. A. What strategy you have adopted under this scenario explain ? B. Determine the position value at the expiation and the profit when stock price is $79, $88, and $706.
Question 2
Opting the strategy of box spread which consist of options on a stock with price of $28.86. The options have strike prices of $26 and $3.25, and they mature in three months. Any position in call option for the of $24and $31have a premium of $4.90and $3.10, respectively. Similarly, any position in put option haveapremium of$3.00and $3.90, respectively. In this scenario what should be the risk-free rate be in order to make the option aligned with market setting or price correction?