10 The following are the closing prices of options on the shares of BAT on Wednesday 10 March 2004.

Refer to the table as required when answering this question.

(a) Explain the fundamental reasons for the large difference between the price of a September 800 call and an April 800 put.

(b) Outline a strategy that combines short calls and short puts. Why would an investor adopt such a strategy?
Use data from the table to illustrate some possible payoffs.

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Calls Puts Exercise Price Apr Jun Sep Apr June Sep BAT 800 36.5 53.5 62.5 9.0 20.0 31.5 (*825) 850 11.0 25.5 35.0 33.0 42.0 55.5 *Current price