Financial Futures Markets
Blazer Manufacturing Company (BMC) is scheduled to announce results regarding a potential innovation in its catalytic converter manufacturing process. Prior to the announcement a trader implements a trading strategy using options on BMC that includes: buying a $3.00 call @ $0.25 and selling a $3.50 call @ $0.10.
(a) Graph the strategy that the trader has chosen. Be sure to include the underlying components of the strategy and carefully label all components in the graph.
(b) What name if often given to this strategy?
(c) What must trader believe about the market in order to use this strategy?
(d) Given your answer in part (c), why would a trader not just buy the $3.00 call? That is, why would they add the sell the $3.50 call in addition to buying the $3.00 call?
(e) What is/are the strategy's breakeven point(s)?
Attachment:- Assignment Files.rar