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Questions about question 2, and the calculation of opportunity cost (needed for calculating profit). To make things more straightforward, assume that any money from the $1000 that you don't invest in the particular options earns a 5% rate of return (with continuous compounding).

That way part (a) makes sense, and there's one opportunity cost for all the strategies. Otherwise, if you're investing slightly less than $1000 (because you can't *quite* spend the whole $1000 on the security in question) you'll have a different opportunity cost for your money for each of the strategies.

2 Option trading strategies 1. Consider the following trading strategy Sell a put option with strike price $26. Buy two put options with strike price $25. . Sell a put option with strike price $24. (a) What is the payoff of this strategy if the stock price is less than S24? b) What is the payoff of this strategy if the stock price is less than $25, but greater than $24? (c) What is the payoff of this strategy if the stock price is less than $26, but greater than $25