Bull spreads and bear spreads. Two dollar put options are available with exercise prices of £0.70 and £0.72. The premiums associated with these options are £0.02 and £0.03 per unit, respectively. (See Appendix 5B in this chapter.) a 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?

b Complete the worksheet.

c At option expiration, the spot rate of the pound is £0.70. What is the bull spreader’s total gain or loss?

d At option expiration, the spot rate of the pound is £0.66. What is the bear spreader’s total gain or loss?

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Bull Spreads and Bear Spreads Two British pound (£) put options are available with exercise prices of \$1.60 and \$1.62. The premiums associated with these options are \$.03 and \$.04 per unit, respectively. (See Appendix B in this chapter.)

a. 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?

b. Complete the following worksheet. c. At option expiration, the spot rate of the pound is \$1.60. What is the bull spreader’s total gain or loss?

d. 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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Bull spreads and bear spreads. Two dollar put options are available with exercise prices of £0.70 and £0.72. The premiums associated with these options are £0.02 and £0.03 per unit, respectively. (See Appendix 5B in this chapter.) a. 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?

b. Complete the worksheet.

c. At option expiration, the spot rate of the pound is £0.70. What is the bull spreader’s total gain or loss?

d. At option expiration, the spot rate of the pound is £0.66. What is the bear spreader’s total gain or loss?