Problem:
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $140 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $140 is $13.06.
Requirements:
Question 1: If the risk-free interest rate is 10% per year, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $140 if it is at the money? (The stock pays no dividends.)
Question 2: What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement?
Question 3: What is the most money you can make on this position?
Question 4: How far can the stock price move in either direction before you lose money?
Please provide all workings and formulas and also provide step by step solution.