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The following three call options on gold, all expiring in three months, sell for: Exercise price Option price $1200 $ 62 $1250 $ 40 $1300 $ 23 Consider the following position: buy 1 call with K = 1200...

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The following three call options on gold, all expiring in three months, sell for: Exercise price Option price $1200 $ 62 $1250 $ 40 $1300 $ 23 Consider the following position: buy 1 call with K = 1200 sell (write) 2 calls with K = 1250 buy 1 call with K = 1300 What would be the values at expiration of such a spread for various prices of spot gold? What investment would be required to establish the spread? Given information about the prices of the $1200 and $1300 options, what could you predict about the price of the $1250 option?
Answered Same Day Dec 25, 2021

Solution

Robert answered on Dec 25 2021
113 Votes
The following three call options on gold, all expiring in three months, sell for: Exercise price
Option price $1200 $ 62 $1250 $ 40 $1300 $ 23 Consider the following position: buy 1 call with
K = 1200 sell (write) 2 calls with K = 1250 buy 1 call with K = 1300 What would be the values
at expiration of such a spread for various prices of spot gold? What investment would be
equired to establish the spread? Given information about the prices of the $1200 and $1300
options, what could you predict about the price of the $1250 option?
Solution
Option Buy/Sell ...
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