Question 1 The table below contains information collected from Bloomberg for 1 year maturity European call options on the S&P 500 index. At the time the S&P 500 was trading at 3,800 and the 1-year risk free rate was 0.25%. In answering the following questions, assume that put-call parity holds, and that the dividend yield is zero. 3,000 3,200 3,400 3,600 3,800 4,000 4,200 30.2% 27.8% 25.5% 23.3% 21.2% 21.7% 22.3% 4,400 4,600 23.0% 23.8% Strike Implied Volatility Call Premium Call Premium % 931 763 605 457 325 250 193 151 121 24.5% 20.1% 15.9% 12.0% 8.6% 6.6% 5.1% 4.0% 3.2% Delta 82.7% 77.8% 71.7% 64.0% 54.7% 45.4% 37.2% 30.4% 25.0% a. An Investor believes that the effects of the COVID-19 pandemic will fade relatively quickly over the coming 12 months and that the market is over estimating volatility. Thus, they are considering selling a straddle with an at-the-money strike. Calculate the premium for this straddle and draw the payoff diagram showing how far the market would have to move before the investor makes a loss at maturity. (20 marks)