The spot price of Ah Keong Berhad stock is now RM8.50. You observe the following prices for the 30-day options.

RM8.00 put = RM0.16

RM8.00 call = RM0.42

RM8.50 put = RM0.61

RM8.50 call = RM0.20

Suppose you long one RM8.00 call and short two RM8.50 calls.

Required:

(a)              Graph the position, label all axes, maximum and minimum profit/loss points.


(b)   What are the break-even points and the risk profile of this strategy ?

(c)   What must your expectation be to justify this strategy ?  


(d)  State one other strategy that has a similar risk profile and state one advantage of the strategy in (a) over the stated strategy.

Answer rating: 100% (QA)

2break even buying srike price net premium paid 800 02 802 if price shoot up then trade face hu... View the full answer