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Maximum profit and maximum loss of option strategy

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Reference no: EM132652879

You think that a stock price is going to swing into a certain range. Hence, in order to limit your risk (and your return as well), you decide to buy one put for $7 with exercise price of 110; buy one put for $1 with exercise price of 95; sell one put for $4 with exercise price of 105; and sell one put for $2 with exercise price of $100.

(a) What is your maximum profit and maximum loss of this option strategy? (hint: using a table, develop profit and loss scenarios for the following stock prices: $90, $100, $105, $110) (Note that each option contract includes 100 stocks)

(b) What is your breakeven point?

Reference no: EM132652879

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