Table $1$

Today is April $1,2024.$ Shares of Conway, Inc. are currently priced at $$\frac{50}{?}$ share. June $30$ Conway calls with a strike of $$50$ are

currently priced at $$2\mathrm{.}5.$ June $30$ Conway puts with a strike of $$50$ are also priced at $$2\mathrm{.}5.$

You decided to purchase both the June $30$ strike $50$ call and June $30$ strike $50$ put to create a combined option strategy

called a long straddle.

a$.$ Complete Table $1$ by showing what the profit at expiry would be $($in dollars$)$ for each option given the indicated stock

price of Conway, Inc. as well as the profit of the combined strategy. $(3$pts$)$

b$.$ The quarterly standard deviation of the underlying stock is $10\%$ with mean $0\%.$ What is the probability that the combined option

strategy will result in a positive payoff under the assumption that stock returns are normally distributed? $(1$pt$)$

Probability

c$.$ If the June $30$ call and put were sold instead of bought $($i$.$e$.$ a short straddle$),$ what would the option profit diagram

look like at expiration for thic rnmhined antinn etrateou? $(3$ntelTable $1$

Today is April $1,2024.$ Shares of Conw ay$,$ Inc. are currently priced at $$50$ ishare. June $30$ Conw ay calls with a strike of

$$50$ are currently priced at $$2\mathrm{.}5.$ June $30$ Conw ay puts with a strike of $$50$ are also priced at $$2\mathrm{.}5.$

You decided to purchase both the June $30$ strike $50$ call and June $30$ strike $50$ put to ereate a combined option strategy

called a long straddle.

a$.$ Complete Table $1$ by showing what the profit at expiry would be $[$in dollars$]$ for each option given the indicated stock

price of Conway, Inc. as well as the profit of the combined strategy. $[3$pts$]$

b$.$ The quarterly standard deviation of the underlying stock is $10\%$ with mean $0\%.$ What is the probability that the combined option

strategy will result in a positive payoff under the assumption that stock returns are normally distributed? $[1$pt$]$

Probability

c$.$ If the June $30$ call and put were sold instead of bought $($i$.$e$.$ a short straddle$],$ what would the option profit diagram

look like at expiration for this combined option strategy? $[2$pts$]$

d$.$ Hould a positive payout be more likely if the stock price was highly volatile or range bound? Why? $[2$pts$]$

At market open on April $1,$ you purchase $300$ shares long of Conw ay at $$50$ ishare.

e$.$ How many June $30$ strike $50$ put option contracts would you need to purchase to hedge against a decline in Conway's stock? $(1$pt$)$

& of Contracts

f$.$ On June $30,$ what must the price of Conway stock be for this combined long stockllong put strategy to result in a positive return? $(1$pt$)$

Price of Conway:

g$.$ If the price of Conway on June $30$ is $$60$ share, what is the dollar value of the profit from this strategy? $[1$pt$)$

Profit $[$$$]$

h$.$ By what percentage have you reduced your upside return on your long Conway stock position by purchasing the June put

option as a hedge against a decline in Conway stock? $[1$pt$]$