Problem:
Suppose that the price of a non-dividend-paying stock is $42, its volatility is 35%, and the risk-free rate for all maturities is 6% per annum. Use Derivagem (Analytic European) to calculate the cost of setting up the following positions. Assume Tree Steps = 100. In each case provide a spreadsheet showing the relationship between profit and final stock price. Use stock price ranges from $20 to $50.
Q1: A bull spread using European call options with strike prices of $35 and $40 and an expiration of 6 months.
Q2: A bear spread using European put options with strike prices of $35 and $40 and an expiration of 6 months.
Q3: A butterfly spread using European call options with strike prices of $35, $40 and $45 and an expiration of one year.
Q4: A butterfly spread using European put options with strike prices of $35, $40 and $45 and an expiration of one year.
Q5: A straddle using options with a strike price of $35 and a six-month expiration.
Q6: A strangle using options with a strike prices of $35 and $40 and a six-month expiration.