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Suppose that LMN Investment Ba

Suppose that LMN Investment Bank wishes to sell Auric a zero-cost collar of width 30 without explicit premium (i.e., there will be no cash payment from Auric to LMN). Also suppose that on every option the bid price is $0.25 below the Black Scholes price and the offer price is $0.25 above the Black-Scholes price. LMN wishes to earn their spread ($0.25 per option) without any explicit charge to Auric. What should the strike prices on the collar be? (Since the collar involves two options, LMN is looking to make $0.50 on the deal. You need to find strike prices that differ by 30 such that LMN makes $0.50.)


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