question archive Consider a bull spread strategy on two European put options on a given stock “XYZ”
Consider a bull spread strategy on two European put options on a given stock “XYZ”
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Consider a bull spread strategy on two European put options on a given stock “XYZ”. One put option has a price of $30 and costs $2. The other put option has a strike price of $35 and costs $3.5.
a) Write down and comment on the payoff and profit tables of a bull spread on these two put options.
[5 marks]
b) Determine the maximum profit from the strategy and the future price(s) of stock “XYZ” at which this maximum profit is obtained.
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