A call option on British pounds (£) exists with a strike price of $1.56 and a premium of $.08 per unit. Another call option on British pounds has a strike price of $1.59 and a premium of $.06 per unit.
a. Complete the worksheet for a bull spread below.
b. What is the break-even point for this bull spread?
c. What is the maximum profit of this bull spread? What is the maximum loss?
d. If the British pound spot rate is $1.58 at option expiration, what is the total profit or loss for the bull spread?
e. If the British pound spot rate is $1.55 at option expiration, what is the total profit or loss for a bear spread?