The common stock of the C.A.L.L Corporation has been trading in a narrow range a

Question

The common stock of the C.A.L.L Corporation has been trading in a narrow range aroung $50 per share for the past month, and you believe it is going to stay in that range for the next three month. You do not know whether it will go up or down, however. The current price of the stock is $50 per share, the price of a three-month put option with an excercise price of $50 is $4, and a call with the same expiration date and excercise price cost of $7.

a. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movements?

b. What is the most money you can make on this option? How far can the stock price move in either direction before you lose money?

Explanation / Answer

The common stock of the C.A.L.L Corporation has been trading in a narrow range a

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