You learn that in 4 months, Tasker Pharmaceuticals (TPH) will release the results of their phase 1 clinical trials for a potential cancer treatment drug. This company has many financial backers but no revenue whatsoever. The results of these trials will either make or break them. Whatever the results, you expect a large movement in the stock price in either direction. (3 points) a. b. C. Create a straddle using the following options. Clearly explain how you will do this: which option(s) you will go long, and which option(s) you will go and why? Assume an interest rate of 2% p.a. Spot $35.42 $35.42 $35.42 Expiration 4 Months 4 Months 4 Months Call Price Strike Price Put Price $0.56 $2.27 $5.44 $6.18 $2.92 $1.12 $30.00 $35.00 $40.00 What is your initial cost per share to enter this position? Draw a profit diagram of your position. Clearly indicate all breakeven points, and intercepts. Tasker Pharmaceuticals announces that the clinical trials have been delayed. No results are announced at the 4-month mark, and the spot price has barely moved to $34.80/share. What is your profit or loss per share? Suppose the results were successful, and the spot price jumps to $42.42 per share. What is your profit or loss per share?

2. You learn that in 4 months, Tasker Pharmaceuticals (TPH) will release the results of their phase 1 clinical trials for a potential cancer treatment drug. This company has many financial backers but no revenue whatsoever. The results of these trials will either make or break them. Whatever the results, you expect a large movement in the stock price in either direction. (3 points) a. Create a straddle using the following options. Clearly explain how you will do this: which option(s) you will go long, and which option(s) you will go and why? Assume an interest rate of 2% p.a. b. What is your initial cost per share to enter this position? c. Draw a profit diagram of your position. Clearly indicate all breakeven points, and intercepts. d. Tasker Pharmaceuticals announces that the clinical trials have been delayed. No results are announced at the 4-month mark, and the spot price has barely moved to $34.80 /share. What is your profit or loss per share? Suppose the results were successful, and the spot price jumps to $42.42 per share. What is your profit or loss per share