This is an option chain for options that expires in 110 days. You can assume T =
ID: 2817388 • Letter: T
Question
This is an option chain for options that expires in 110 days. You can assume T = 0.3 year
and there is no bid-ask spread, i.e. each option can be bought and sold at the same price.
calls
strikes
puts
13.46
11.81
10.26
8.83
7.53
6.36
50
52
54
56
58
60
0.66
1.00
1.44
2.00
2.68
3.50
For a call-constructed 50-60 bear spread, what is the profit or loss when the underlying spot price is 55 at expiration?
calls
strikes
puts
13.46
11.81
10.26
8.83
7.53
6.36
50
52
54
56
58
60
0.66
1.00
1.44
2.00
2.68
3.50
Explanation / Answer
In call constructed bear spread, european call is bought at a higher strike price and another call option is sold at lower strike price. Now for a 50-60 bear spread when spot price is 55 i.e. in between strike prices, payoff at maturity is Higher strike price-spot price .
payoff= 60-55=5
now option costs for entering a bear spread = +13.46(for selling)-6.36(for buying the put)= 6.9
profit/loss= payoff +premium paid =5+(6.9)= 11.9
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