A strip is a variation of a straddle involving two puts and one call. Construct a short strip using the August 170 options. The price of the call option is $8.10 and the price of the put option is $6.75. Hold the position until the options expire. Determine the profits and graph the results. Identify the breakeven stock prices at expiration and the minimum profit.

 

2. The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $140 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $140 is $13.06.

a. If the risk-free interest rate is 10% per year, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $140 if it is at the money? (The stock pays no dividends.) => $19.58

b-1. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement? => Sell a straddle

b-2. What is the most money you can make on this position? => $32.64

b-3. How far can the stock price move in either direction before you lose money? =>$32.64

c. How can you generate a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?

Position	Immediate CF
Call (long)
Put (short)	13.06
Lending Position
Total	140.00

 

3. The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $155 per share, and the price of a 3-month call option at an exercise price of $155 is $5.40.