2.

Answer in your notebook

1. In option trading, define 'in the money', 'out of the money' and 'at the money'.
2. What is the difference between holding a stock and holding an option with a stock as underlying asset? Write at least three differences.
3. Consider the following options portfolio. You write a January expiration call option on IBM with exercise price $195. You write a January IBM put option with exercise price $190.

Answer in your notebook

1. Present on a table the payoff of this portfolio at option expiration
2. If the call premium is $0.01 and put premium is $1.75, at what two stocks prices you will just break even on your investment.
3. What kinf of "bet" is this investor making, that is , what must this investor believe about IBM's stock price to justify this position?

Answer in excel (If you can explain what you used in excel that would be great)

4. Graph the payoff and profit of your strategy.