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
What spread would you prefer?
a) 35 - 40
b) 40 - 45
c) 45 - 50
Calculate the potential profit and loss for each spread and examine the possibilities which could be exercised according to your expectations. The exercise of the options will also involve the related commissions.