$2.$ You learn that in $4$ months, Tasker Pharmaceuticals $($TPH$)$ will release the results of their phase $1$ clinical trials for a potential cancer treatment drug. This company has many financial backers but no revenue whatsoever. The results of these trials will either make or break them. Whatever the results, you expect a large movement in the stock price in either direction.

$(3$ points$)$

a$.$ Create a straddle using the following options. Clearly explain how you will do this: which option$($s$)$ you will go long, and which option$($s$)$ you will go and why? Assume an interest rate of $2\%$ p$.$a$.$

Spot Expiration Call Price Strike Price Put Price

$$35\mathrm{.}424$ Months $$6\mathrm{.}18$ $$30\mathrm{.}00$ $$0\mathrm{.}56$

$$35\mathrm{.}424$ Months $$2\mathrm{.}92$ $$35\mathrm{.}00$ $$2\mathrm{.}27$

$$35\mathrm{.}424$ Months $$1\mathrm{.}12$ $$40\mathrm{.}00$ $$5\mathrm{.}44$

b$.$ What is your initial cost per share to enter this position?

c$.$ Draw a profit diagram of your position. Clearly indicate all breakeven points, and intercepts.

d$.$ Tasker Pharmaceuticals announces that the clinical trials have been delayed. No results are announced at the $4-$month mark, and the spot price has barely moved to $$34\mathrm{.}80/$share$.$ What is your profit or loss per share?

e$.$ Suppose the results were successful, and the spot price jumps to $$42\mathrm{.}42$ per share. What is your profit or loss per share?