1. A call option with a strike price of $100 costs $5. A put option with a strike price of $85 costs $4.

1. 1. Explain how a strangle can be created from these two options.
   2. What is the cost of this strategy?
   3. When should I exercise my options?
   4. For what range of future stock prices would the strategy lead to a gain and what is the maximum gain you can receive? Prove your answer by providing an example.
2. 5. For what range of future stock prices would the strategy lead to a loss and what is the maximum loss you could sustain? Prove it by giving an example.