12. Stock XYZ is trading at $40. A six-month put option with an exercise price of $35 is trading for $2. You buy the put.

a. Which direction do you want the stock to go?

I would want the stock to go down.

b. What is your breakeven stock price?

Option payoff = (Strike price-Stock price)- Option value0 = (35- Stock price)-22= (35- Stock price)Stock price = 35-2= $33

c. If you sell both options, are you expecting the stock to be volatile over the next three months?

d.If you sell both options, what is the range of stock prices in which you make money?

e.What is your biggest risk if you sell both options?