Conviction about the stock prices future movement

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Reference no: EM131496426

The common stock of General Electric has been trading in a narrow range around $50 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $50 is $4, and a call with the same expiration date and exercise price sells for $7.

(a) What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement?

(b) What is the most money you can make on this position? How far can the stock price move in either direction before you lose money?

Reference no: EM131496426

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