YOU MUST USE THIS AS A TEMPLATE – (you certainly don’t need to type this assignment)– LEAVE THE QUESTIONS AS THEY ARE – AND PLEASE STAPLE! NOTEBOOK PAPER (OR ANY PAPER) STAPLED TO THE BACK IS NOT ACCEPTABLE (GETS A ZERO). ALSO, PLEASE PUT THE FIRST TWO LETTERS OF YOUR LAST NAME IN THE TOP RIGHT HAND CORNER OF THIS PAGE SO THAT WE CAN ALPHABETIZE THESE EASILY. THANKS IN ADVANCE!

1) (65 points total) Use the three tables below to answer the following questions

Table 1

Table 2

Table 3

For all option questions, use the 'Last' column for the premium of the option(s)... as we did/do in class.

a) (5 points) Why is the 160 call cheaper in Table #2 than it is in Table #1?

b) (5 points) Suppose we play a long straddle by purchasing one 160 call and one 160 put at Table 1 and close both positions at Table 2. Calculate the profit/loss and rate of return.

c) (5 points) Suppose instead that we waited and closed at Table 3, calculate the profit/loss and rate of return.

d)(10 points) Assuming the spot price of AAPL is frozen at its value on Table 2 until expiration, plot the evolution of the premium on the 160 call and the 160 put (use Table 2 for all information). Be sure to label cal and put

e) (5 points) Suppose your friend plays a short straddle by writing (selling) one 160 call and one 160 put at Table 1 and closes both positions on Table 2. Calculate the profit/loss of doing so. Does your answer relate to any of your answers above? What is this principle referred to as? Explain and show work.

f) (25 points for a correct and completely labeled graph) We are now going to graph the profit functions for the long and short straddle as above where we opened up the positions at Table 1. Identify the profit / loss for both players for two points: point A is one point, with the spot at expiration as it is in Table 2: spot = $160.73 (there are two points A's, one for the player of long straddle and one for the player of short straddle). Point B is the other point, with the spot at expiration as it is in Table 3: spot = $164.05 (there are two points B's, one for the player of long straddle and one for the player of short straddle).

Also make sure you label both breakeven (BE) points.

g) (10 points) Go through the math assuming that the player of the long straddle exercises the options under the conditions associated with point B where the spot @ expiration is $164.05. Be sure to clearly indicate what the player of the short straddle has to do given that the player of the long straddle is exercising the options that are in the money..... provethat this is indeed a zero sum game! That is, show that the winners winnings = the losers losings. Show ALL the math or points will be taken off.

2. (60 points total)

a) (5 points) Suppose we play a long strangle by purchasing one 162.5 call and one 157.5 put at Table 1 and close both positions on Table 2. Calculate the profit/loss and rate of return.

b) (5 points) Suppose instead that we waited and closed at Table 3, calculate the profit/loss and rate of return.

c) (25 points) We are now going to graph the profit functions for the strangle (as defined above) forthe player of the long straddle and the player of the short strangle where both players opened up their positions at Table 1. Identify the profit / loss for both players for two points: point A is one point, with the spot at expiration as it is in Table 2: spot = $160.73 (there are two points A's, one for the player of long strangle and one for the player of short strangle). Point B is the other point, with the spot at expiration as it is in Table 3: spot = $164.05 (there are two points B's, one for the player of long strangle and one for the player of short strangle).

Also make sure you label both breakeven (BE) points.

d) (10 points) Go through the math assuming that the player of the long strangle exercises the option that is in the money under the conditions associated with point B where the spot @ expiration is $164.05. Be sure to clearly indicate what the player of the short strangle has to do given that the player of the long strangle is exercising the option that is in the money..... provethat this is indeed a zero sum game! That is, show that the winners winnings = the losers losings. Show ALL the math or points will be taken off.

e) (10 points) When we define a short position in finance we say that that the way you can make money is when the price of the asset falls. This being the case, why do they call a short straddle a short straddle? - explain the mechanism in which the player of a short straddle makes money when prices fall - are they talking about the price of the stock or the price of the options.....explain. What could cause both of the options in a short straddle to fall? explain

f) (5 points) The Table below is from 9/09/17 that contains information about calls and puts that have already expired (they expired on 9/08). The ‘last’ columnson all of these options are wrong. Please enter the correct last sale price to the left of the existing last sale price for all 8 options. Note, the spot at expiration for GOOG = $926.50.

3) (55 points total)

a) (5 points) Suppose you are bullish on AAPL and you decide to buy one hundred 160 calls at Table 1 and close your position at Table 2. Calculate your profit or loss and rate of return. How much money did you save or loseby closing at Table 2 relative to closing at Table 3.

b) (5 points) Suppose you are bullish onAPPL and you decide to write (sell) one hundred 160 puts at Table 1 and close your position at Table 2. Calculate your profit or loss showing all work.How much money did you save or lose by closing at Table 2 relative to closing at Table 3.

c) (15 points) In the space below, graph the profit function of the one hundred 160 call options assuming you purchased them at Table 1. Consider the following three scenarios: 1) theone hundred 160 call options expire with the spot price ofAAPLas it is at Table 1 - label this as point A on your profit function and 2) the one hundred 160 call options expire with the spot price of AAPL as it is at Table 2 - label this as point B on your profit function and 3) the one hundred 160 call options expire with the spot price of AAPL as it is at Table 3 - label this as point C on your profit function. On your diagram make sure you include the breakeven point along with identifying the in, at, and out of money areas on your graph.

d) (10 points) In the space below, graph the profit function of the one hundred 160 put options that you wrote assuming that you wrote them at Table 1. Consider the following three scenarios: 1) the one hundred 160put options expire with the spot price of AAPL as it is at Table 1 - label this as point A on your profit function and 2) the one hundred 160put options expire with the spot price of AAPL as it is at Table 2 - label this as point B on your profit functionand 3) the one hundred 160 put options expire with the spot price of AAPL as it is at Table 3 - label this as point C on your profit function. On your diagram make sure you include the breakeven point.

e) (20 points) We are now going to graph the profit function that you drew in part d) (purchasing the one hundred 160calls at Table 1) and the profit function that you drew in part e) (writing the one hundred 160 puts at Table 1) ON THE SAME GRAPH. If drawn correctly, the profit functions cross twice implying that there are two spot prices at expiration such that you would be indifferent between buying the one hundred 160calls vs. writing the one hundred 160puts (recall - both are bullish bets!). Identify and label these two points as Indiff 1 and Indiff 2 and explain, using numbers, why the profit or loss, whichever applies, is exactly the same for either bet. Be specific and show all work! Note, no worries about labeling the breakeven points, you did that above!

1