You are bullish about an underlying that is currently trading at a price of
$80. You choose to go long one call option on the underlying with an exercise price of
$75 and selling at $10 and go short one call option on the underlying with an exercise
price of $85 and selling at $2. Both the calls expire in three months.
A . What is the term commonly used for the position that you have taken?
B . Determine the value at expiration and the profit for your strategy under the following
outcomes:
i . The price of the underlying at expiration is $89.
ii . The price of the underlying at expiration is $78.
iii . The price of the underlying at expiration is $70.
C . Determine the following:
i . the maximum profit.
ii . the maximum loss.
D . Determine the breakeven underlying price at expiration of the call options.
E . Verify that your answer to Part D above is correct