1. What is the difference between bullish and bearish? How are volatility strategies different? Specify the difference in terms of strategy and number of options.

2. Compare the volatility strategies of a straddle, strangle, strip, and strap. Explain how to create each strategy, and how they compare and contrast.

3. What are the maximum gains and losses on buying a butterfly spread? Use strike levels of K1 = 100, K2 =110, and K3=120, and trade 400 options; their premiums are P1, P2, and P3. When would you prefer this strategy? Provide 2 reasons.

4. A stock price has an expected return 12% per year and volatility of 25% per year. Currently the stock price is $40. Assume 252 days per year.

a) Write the equation for a log-normal stock dynamics. b) Then write the equation for the change in stock price. c) Then find the standard deviation of the stock price at the end of one day? d) Suppose there is excess kurtosis of 10. What would you assume about the standard deviation? Provide 2 reasons.