FNCE 4040 Spring 2012 David M. Gross, Ph.D.

. Option Strategies Homework Assignment This assignment is due Tuesday April 3 at the beginning of class. Late assignment will not be accepted. Your grade will depend on accuracy of your work as well as the neatness of your work. Please work with care and submit and assignment free of corrections.

For each of the seven option strategies below: 1. Calculate the initial cash flow (CF0) 2. Produce a table showing the Value and Profit at expiration (VT and T) for each relevant range of the underlying stock price (ST) 3. The range over which the strategy is profitable 4. A graph of the position including labels of: a. The values where lines cross the horizontal axis b. The values where lines change slope c. The values where the lines are flat See the examples from class and the Options Strategies Handout. Option Strategies: 1. Synthetic Short Put: Long Stock (at $100), Short $100 Call at $10 2. Bull Put Spread: Long $45 Put for $7, Short $55 Put at $15 3. Butterfly Put Spread: Short a $55 Put for $3, Long two $60 Puts for $5 each and Short a $65 Put for $8 4. Straddle: Long $80 Call at $6, Long $80 Put at $4 5. Top Strangle: Short $75 Put for $9, Short $85 Call for $11 6. A Zero-Premium Collar: Long Stock at $50, long $45 Put for $8, Short $57.50 Call at $8 7. A Short Zero Premium Collar: The spot price of oil is $95 and you will buy oil in August. Today you pay $6 for a $100 August Call (to cap the price). To pay for the call, you sell a $91 August Put for $6 (to put a floor on the price). Note: Since you need to buy oil in the future, you are currently economically short oil at $95.