Use the information in the table to answer the following questions. Create one s

Question

Use the information in the table to answer the following questions. Create one spread per question from the prices in the chart. Create only one option spread for each question. For example if you were going to create a covered write you might want to buy 100 shares at $91 and write a May 100 call against it. Please use a different option than the example.
The stock is trading at $91 per share

Create a vertical ratio spread
a. If you have a credit from creating the spread (the value of what you sold is greater than what you bought) what is your profit or loss if the stock goes down?

Calls Puts May-85 $7.50 May-85 $1.50 May-90 $4.20 May-90 $3.10 May-95 $1.90 May-95 $5.90 May 100 $0.70 May 100 $9.80

Explanation / Answer

Long one ITM put option and short two OTM put options. Calls Puts May-85 7.5 May-85 1.5 May-90 4.2 May-90 3.1 Short 2 put May-95 1.9 May-95 5.9 Long 1 put May 100 0.7 May 100 9.8 Put Ratio Spreads involve selling more out of the money put options than at the money / in the money put options are bought Trading price is 91 Short 2 May-90 put option Long 1 May -95 put option Net premium Price Profit/Loss fromshare movement Net PL Comment 0.3 91 4 4.3 Long put will be executed 0.3 90 5 5.3 Long put will be executed 0.3 89 4 4.3 Long put will be executed Both the shorts will be executed 0.3 88 3 3.3 Long put will be executed Both the shorts will be executed 0.3 87 2 2.3 Long put will be executed Both the shorts will be executed 0.3 86 1 1.3 Long put will be executed Both the shorts will be executed 0.3 85 0 0.3 Long put will be executed Both the shorts will be executed 0.3 84 -1 -0.7 Long put will be executed Both the shorts will be executed

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