# Bull Spreads and Bear Spreads Two British pound (Â£) put options are available with exercise prices of \$1.60 and \$1.62. The premiums associated with these options are \$0.03 and \$0.04 per unit, respectively. (See Appendix B in this chapter.) Describe how a bull spread can be constructed using these put options. What is the difference between using put options versus call options to construct a bull spread? Complete the following worksheet. At option expiration, the spot rate of the pound is \$1.60. What is the bull spreader’s total gain or loss? At option expiration, the spot rate of the pound is \$1.58. What is the bear spreader’s total gain or loss?

FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698
FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698

#### Solutions

Chapter 5, Problem 37QA
Textbook Problem

## Bull Spreads and Bear Spreads Two British pound (Â£) put options are available with exercise prices of \$1.60 and \$1.62. The premiums associated with these options are \$0.03 and \$0.04 per unit, respectively. (See Appendix B in this chapter.) Describe how a bull spread can be constructed using these put options. What is the difference between using put options versus call options to construct a bull spread? Complete the following worksheet. At option expiration, the spot rate of the pound is \$1.60. What is the bull spreader’s total gain or loss?At option expiration, the spot rate of the pound is \$1.58. What is the bear spreader’s total gain or loss?

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