A one-year call option on ABC stock with a strike price of $30 costs $3; a one-year call option on ABC stock with a strike price of $25 costs $7; a one-year put option on the same stock with a strike price of $30 costs $4.

a. Suppose you expect the price of ABC stock to either increase or decrease significantly in one year. What would be the appropriate strategy to use given the options (not necessarily all of them) above? Explain why.

b. Suppose that a trader buys two call options and one put option with a strike price of $30. Construct a table that shows the profit OR payoff for this strategy. [hint: there are three possible outcomes at expiration].