A trader executes a ldquobear spreadrdquo on the japanese, Ask an Expert

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A trader executes a “bear spread” on the Japanese yen consisting of a long PHLX 103March put and a short PHLX 101 March put. The option premium for the 103 putis $0.0281 and the option premium for the 101 put is $0.016. Assume the contract isworthU6,250,000.

[This means that the strike price of the long put is$1.03 and the strike price of the shortput is$1.01. Both options are traded on the Philadelphia Stock Exchange, now knownas NASDAQ OMX PHLX (PHLX).]

(a) What is the net cost of the bear spread?

(b) What is the maximum amount the trader can make on the bear spread in the eventthe yen depreciates against the dollar?

(c) Redo your answers to parts a) and b) assuming the trader executes a “bull spread”consisting of a long PHLX 97 March and a short PHLX 103 March call. The option premium is $/¥ 0.0321 for the long call and $/¥ 0.0196 for the short call. What is thetrader’s maximum profit? Maximum loss?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92845000

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