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Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.
a) What is the strategy?
Bull Spread.
b) Fill in the missing values for the following Table.
Stock Price Range
Payoff
Profit (the initial cost is 3
ST=100
0
-3
100<ST<105
ST-100
ST-103
ST=105
5
2
a)What is the maximum potential profit of your strategy?
200
b) If, at expiration, the price of a share of IBM stock is $102, what would be your profit?
-100
c) What is the maximum loss you could suffer from your strategy?
-300
f) What is the lowest stock price at which you can break even?
103
show how to get these numbers for questions a,c,d,e,f
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