Chapter 06 · Section 6.1

Coca Cola Spread-1

On the basis of the last price in the quotation table which follows, you must make a bull put spread on Coca-Cola shares. The shares are actually trading at 44 3/8 and you think that from now until the expiration of the option the shares may increase 5 to 10 %.

 
      PUTS COCA-COLA (May)                                          
strike    last    bid     ask  
35        1/2     3/8     5/8
40       1 3/8   1 1/4   1 3/8
45       3 7/8   3 1/4   3 7/8
50       6 1/8     6     6 1/2

• a) 35 - 40
  No. In this case your potential for maximum gain is limited to 7/8 ( the net premium received) and your potential of loss is a maximum of $4 1/8 ((40-35) - 7/8).
  b) 40 - 45
  c) 45 - 50

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