This is an option chain for options that expires in 110 days. You can assume T =
ID: 2817395 • Letter: T
Question
This is an option chain for options that expires in 110 days. You can assume T = 0.3 year
and there is no bid-ask spread, i.e. each option can be bought and sold at the same price.
calls
strikes
puts
13.46
11.81
10.26
8.83
7.53
6.36
50
52
54
56
58
60
0.66
1.00
1.44
2.00
2.68
3.50
Consider a ratio spread constructed using the 50-strike put and the58-strike put options and the goal is to use the ratio spread to provide some downside protection with almost no cost. If the spot price of the underlying at expiration is 49, what is the profit or loss for this ratio spread per unit of the underlying asset (such as one share of a stock)?
calls
strikes
puts
13.46
11.81
10.26
8.83
7.53
6.36
50
52
54
56
58
60
0.66
1.00
1.44
2.00
2.68
3.50
Explanation / Answer
If the spot price is $49 then there will be positive cashflwo from ratio spread
payoff = max(0,58-49) + max(0,50-49) = $10
put option price = .66 + 2.68 = $3.34
per unit profit = ($10 - $3.34)/2 = $3.33
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