What is the maximum possible profit

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Reference no: EM131965040

Question: The current price of a non-dividend paying stock is 100 and the continuously compounded risk-free annual rate of interest is 2%. You enter into a short position on 3 Call options, each with 6 months to maturity, a strike price of 95, and initial premium of $8.92. Simultaneously, you enter into a long position on 4 Call options, each with 6 months to maturity, a strike price of 110, and an option premium of $2.45. Assuming all 7 options are held until maturity, what is

(i) the maximum possible profit?

(ii) the maximum loss for the entire option portfolio?

Include a labeled profit diagram to support your answer.

Reference no: EM131965040

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