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
c) B 110 / S 105
• d) B 100 / S 105
  No. With this solution you opt for a slight increase in the underlying. On the other hand, you must invest money to establish your position, whilst it would be possible to earn money.

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