Chapter 06 · Section 6.1

IBM Calls

In the table below, we see the evolution in time of the theoretical prices of the April call options on IBM with a unchanged stock price of $105. If you anticipate the situation to remain stable or a slight downturn in the underlying for some days, how do you make use of this information in the formation of the spread?

                  Calls IBM April
Strike    -35 d    -25 d   -15 d   -0 d  
100       6.867    6.330   5.751   5.000
105       3.860    3.277   2.431   0.000
110       2.001    1.420   0.786   0.000

a) B 105 / S 110
• b) B 105 / S 100
  No. Even if your position is bearish (with your break even point at 1069.70), your spread is rather risky if you intend to get out of your position very quickly. As a matter of fact, the 105 call is depreciating faster than the 100 call.
  c) B 110 / S 105
  d) B 100 / S 105

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