a. What is the difference between the two primary kinds of options (puts and calls)? What is the difference between European and American options?

b. What is the difference between payoff and profit of an option? Which line (payoff, profit) should be lower when you draw the two lines on graph for a long call option?

c. How do you form a protective put? What is your maximum profit when you sell a straddle?

d. Given a 3-month put price is 4.5 at strike price of 57.5 on an asset that is currently trading at 55.17. Assume risk free rate to be 7%. What is the price of a call option with strike price of 57.5 with 3 month maturity on the same asset? Show how you got the value. (Hint: You can use Put-Call parity to solve this)