Question

10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread using the puts with strike prices 170 and 175. Be sure to use the appropriate bid and ask prices. a. What will be your cash flow per share when you set up the position? Show all cash flows: inflows, outflows, and net flow. Inflow Outflow Net Flow b. The maximum profit on the put bear spread is c. The minimum profit on the put bear spread is d. The breakeven point on the put bear spread is e. What will be your gain or loss per share on the net position if at expiration the price of Spotify is $172.25? 11. Use the options prices for Spotify to create a bull spread using call options with 155 and 160 strike prices. Be sure to use the appropriate bid and ask prices. a. What will be your cash flow per share when you set up the position? Show all cash flows: inflows, outflows, and net flow. Inflow Outflow Net Flow b. The maximum profit on the call bull spread is c. The minimum profit on the call bull spread is

Answer 1

	10a	Cash inflow for selling PUT at strike 170	$10.55	(Bid)
		Cash out flow for Buying PUT at strike 175	($14.00)	(Ask)
		NET FLOW	($3.45)
	b	Payoff from Buying Put at 175:
		Price at expiration =S
		Payoff=Max((175-S),0)
		Payoff from Selling Put at 170:
		Price at expiration =S
		Payoff=Min((S-170),0)
		Maximum Payoff from Bear Spread=(175-170)	$5
		Maximum Profit from Bear Spread=$5-$3.45	$1.55
	c	Minimum Payoff from the bear spread:S>$175	$0
		Minimum Profit from the bear spread=$0-$3.45	($3.45)
	d	Break Even Point , where Payoff =$3.45
		Break even point =175-3.45	$171.55
	e	If Price at expiration=$172.25
		Payoff =175-172.25=	$2.75
		Profit =2.75-3.45	-$0.70
		Please Note:
		As Per HOMEWORKLIB RULES, in order to optimizes resources, only one question need to be answered