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3. (a) You believe that Tesla will go down by 20% over the next few months. Make a bear spread portfolio from available options (use
3. (a) You believe that Tesla will go down by 20% over the next few months. Make a "bear spread" portfolio from available options (use bid-ask midpoint) that has no time 0 cost and will be profitable if Tesla goes down exactly 20%.
- Describe exactly the options you would buy including the prices and show that there is no cost (or positive payout) to the position today
- Draw a diagram that shows the payoffs at time T. Label the diagram clearly.
(b) Make a "butterfly spread" from available options (use bid-ask midpoint) that will pay you if Tesla goes down by about 20% or up by about 20% over the next few months. Try to Make this spread with as little up front cost as possible.
- Describe exactly the options you would buy including the prices and show the cost to the position today
- Draw a diagram that shows the payoffs at time T. Label the diagram clearly.
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