1. Suppose you buy 100 shares of EK at 79, and simultaneously write a MAR 80 straddle for $6. Draw a profit/loss diagram and label all significant points.
2.A butterfly spread involves writing two call options at one striking price, buying one call option at a lower striking price, and buying one call option at a higher striking price.
Suppose you did this using JUN 300 calls ($4 ¼ each), JUN 305 calls ($2 ½), and JUN 310 calls ($1).
a.What is the maximum possible gain from this strategy?
b.What is the maximum possible loss?
c.What is the gain or loss if, at expiration, the underlying security sells for exactly 302?
3. A butterfly spread involves writing two call options at one striking price, buying one call option at a lower striking price, and buying one call option at a higher striking price.
Suppose you did this using JUN 30 calls ($2 ¼ each), JUN 35 calls ($1 ¼), and JUN 40 calls ($ ½).
a. What is the maximum possible gain from this strategy?
b. What is the maximum possible loss?
c. What is the gain or loss if, at expiration the underlying security sells for exactly $32?
4.Suppose an investor does the following:
•Buys an OEX MAY 305 call option for $1;
•Writes an OEX MAY 300 call option for 1 7/8;
•Buys an OEX MAY 265 put option for 1 ½ ;
•Writes an OEX MAY 270 put option for 2 5/8.
These four positions mean that the investor has established a bear spread with the calls and a bull spread with the puts.
b.What are your maximum profit and your maximum loss with this strategy?
5. Comment of the accuracy of the following statement: “A person who owns 100 shares of stock and writes two calls against it has essentially written a straddle.”
6. In the article “Further Evidence of the Influence of Option Expiration on the Underlying Common Stock” by Strong and Andrew there is discussion of the “convergence phenomenon.”
7. Construct a bull spread using the following options:
APR 40 put $ 2 ½
APR 45 put @ $6