What is the maximum profit and the maximum loss

Reference no: EM13266755

Strike July Aug Oct

165 2.69 5.25 6.2

170 .81 3.25 6

Many option traders use a combination of a money spread and a calendar spread, called a diagonal spread. This transaction involves the purchase of a call with a lower exercise price and a longer time to expiration and the sale of a call with a higher exercise price and a shorter time to expiration. Evaluate the diagonal spread that involves the purchase of the October 165 call and the sale of the August 170 call. The August option cycle ends on August 21. Assume you close this position on August 1. Graph the profit potential (if any) for this position. What is the maximum profit and the maximum loss the trader can incur? At what price of the stock does the diagonal spread break-even?

Reference no: EM13266755

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