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.
a. 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.)
b. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price’s future movement?
c. What is the most money you can make on this position?
d. How far can the stock price move in either direction before you lose money?