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Future behavior of the underlying stock price

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Suppose the shares of Mantan Madina Berhad (MMB) is being in the uptrend and believe that it will be in this direction in the short term. Two call options on this stock, both having same expiry dates, but have strike prices K1 = $30 and K2 = $42, and premiums c1 = $6 and c2 = $4 respectively.

As an investor who constructed the bull spread, the investor must have certain expectations about the future behavior of the underlying asset's price.

a. If the current underlying stock price is $30, describe what is the expectations as regards the future behavior of the underlying stock price.

b. From the option writer's point of view what would consider the call option's future behavior of the underlying stock price?

Reference no: EM133068477

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