Question

Table 2 gives today’s prices of one-year European put and call options written on a share of stock ABC at different strike prices. Call Price ($) Strike Price ($) Put Price ($) 13.30 100 8.30 10.45 105 10.45 8.30 110 13.30 6.50 115 16.50 Table 2 a) Assuming that the rate of interest is 0% and that the stock does not pay any dividend, use the information in Table 2 to derive the price of a share of stock of ABC today. b) Provide an analysis of the profit at maturity of the following strategies: 1. A bear spread using call options with strike prices of $100 and $110. 2. A strangle using options with strike prices of $100 and $110 where you buy the options today. 3. A butterfly spread using put options with strike prices of $105, $110, and $115 where you buy the $105 and $115 strike puts. In each case provide a table showing the relationship at maturity between profit/loss and the stock price at maturity. Profit is defined as the value of the position at maturity minus its cost today (cost is positive in the case of a debit trade and negative in the case of a credit trade).