(A) An investor decides to create a Bull spread using following calls on a stock X Calls are available at strike prices of Rs 700 and 750 at premium of Rs 29 50 and Rs 12 50 respectively Draw a Pay off diagram and Find out What would be the maximum risk loss if the market turns bearish and crosses Rs 700 What would be the maximum reward profit if the market crosses Rs 750 while going up At what price would the break even be (B) Define objective, construction and risk, reward implications of a Short Straddle strategy Draw the pay off diagrams (Show clearly maximum risk and reward and breakeven scenarios by taking a suitable example) Why is this strategy called a suicidal strategy Explain what you should do if the market goes against the assumptions made while designing the straddle

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Question: (A) An investor decides to create a Bull spread using following calls on a stock X: Calls are available at strike prices of Rs. 700

(A) An investor decides to create a Bull spread using following calls on a stock X:

Calls are available at strike prices of Rs. 700 and &750 at premium of Rs. 29.50 and Rs. 12.50 respectively. Draw a Pay off diagram and Find out

What would be the maximum risk / loss if the market turns bearish and crosses Rs. 700?
What would be the maximum reward / profit if the market crosses Rs. 750 while going up?
At what price would the break even be?

(B) Define objective, construction and risk, reward implications of a Short Straddle strategy. Draw the pay off diagrams (Show clearly maximum risk and reward and breakeven scenarios by taking a suitable example). Why is this strategy called a suicidal strategy? Explain what you should do if the market goes against the assumptions made while designing the straddle.

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