Question # 1 (10 Points): Please fill up the ? or highlighted cells. [Note: Information below concerns options with three different strikes (referred to as Option# 3, 5 and 7) and the underlying Stock. If the Position for any of these indicates “NONE”, it should be ignored for the strategy in the Question].
Question # 2 (15 Points): Consider all option positions at the unit level, not contract level. Any individual option position must be for at least one unit although fractional positions (e.g., 1.25, 1.50, 2.12, etc.) are permissible. Any strategy involving more than one strike and/or one type (call, put) must involve exactly one unit for at least one of the individual option positions. WORK DETAIL IS REQUIRED FOR THIS QUESTION.
You expect that the stock will exhibit fluctuations around the current level until option expiration, and most likely it will end up, by option expiration, very close to the current level. While this expectation is by no means guaranteed to realize, you think the chances of the stock making a large move to the downside by expiration is highly unlikely. Your objective is to earn speculative profit and you are highly risk tolerant. Based on your belief, you wish to make a risky bet such that your profit will be reduced by $1 for every dollar by which the stock price at maturity exceeds the current level and your profit will be reduced by $1.80 for every dollar by which the stock price at maturity falls short of the current level.
(a) What are the individual stock and/or option positions under the most suitable strategy?
(b) Calculate the break-even underlying asset price(s) at maturity, and the maximum profit and the maximum loss potentials (must indicate these on a profit diagram).
(c) At what stock price level(s) at maturity a profit of +$70 will be achieved?