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Bear spread on the Japanese yen

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7. A trader executes a "bear spread" on the Japanese yen consisting of a long PHLX 103 March put and a short PHLX 101 March put.

a. If the price of the 103 put is 2.81 (100ths of ¢/¥), while the price of the 101 put is 1.6 (100ths of ¢/¥), what is the net cost of the bear spread?

b. What is the maximum amount the trader can make on the bear spread in the event the yen depreciates against the dollar?

c. Redo your answers to parts a and b assuming the trader executes a "bull spread" consisting of a long PHLX 97 March call priced at 0.0321¢/¥ and a short PHLX 103 March call priced at 0.0196¢/¥. What is the trader's maximum profit? Maximum loss?

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a. Going long on the 103 March put costs the trader 0.0281¢/¥ while going short on the 101 March put yields the trader 0.016¢/¥. The net cost is therefore 0.0121¢/¥ (0.0281- 0.016). On a contract of ¥6,250,000, this is equivalent to $756.25.

b. The 103 March put gives the trader the ...

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