Question 2 (10 Marks)

Consider the following information on the options available on stock ABC. You intend to write one Jan maturity call option on company ABC's stock with exercise price $105 and write one Jan maturity put option on the same underlying asset with strike price $100. The information of the options on the stock of company ABC is as follows:

		Call	Put
Strike	Expire Date	Volume	Price	Volume	Price
90	Jan	45	14.875	206	0.125
95	Jan	216	9.625	741	0.25
95	Feb	10	12.375	261	1.875
100	Jan	911	5.25	2021	0.75
100	Apr	29	11	319	4.75
100	Jul	5	13.375	225	6.625
105	Jan	3109	1.75	2357	2.25
105	Feb	358	5	339	5.25
105	Apr	231	7.75	527	6.5
110	Jan	1986	0.375	80	5.75
110	Feb	1025	2.9375	27	7.5
110	Apr	421	5.375	21	9.25

1. Graph the payoff as well as the profit/loss of this portfolio at option expiration. (2 Marks)

1. At what price range will you break even on your investment based on the payoff? (3 Marks)

1. What will be the payoff and profit/loss on this portfolio if company ABC trades at $102 on the option maturity date? (3 Marks)

1. Given the portfolio that you have constructed, what is most likely your view of the future for the price of ABC's stock? (2 Marks)