13. The common stock of Xerox Corporation has been trading in a narrow price range for the past month. You belie it is going to break far out of that range in the next month (June), though you dont know for sure whether it will go up or down. The current price of Xerox is $65 per share. The following price quotations on Xerox options which are traded at CBOE are available.

Call Put -

Stock Price Strike Price Expiration Volume Last Volume Last

65 60 June 1563 5 1425 3

Can you formulate a strategy to exploit this soon-to-be volatile stock price? How much would be your profits, if, at expiration, the price of a share of Xerox stock is $40, $60, and $80 respectively?

a. -$8, $5, $10

2. -$8, -$2, $8
3. $12, -$8, $12
4. $12, -$8, -$8