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What is the break-even stock price

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Suppose a stock is currently selling at $42, and there are two call options available on this stock with the following characteristics. One call option with strike price of $40 is selling at $4, whereas another call option with strike price of $45 is selling at $2. You construct a bull spread, which means you purchase the call with the lower strike price and write the call with the higher strike price.

a. Perform a "what if" analysis. That is, make a table showing net profit as a function of stock price at expitation (ST)

b. What is the break-even stock price?

c. What is the most you could lose in this strategy?

d. What is the most you could make in this strategy?

e. Construct a graph showing how net profit varies with stock price at expitation for this bull spread.

Reference no: EM132499605

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