Aline Nues is a junior analyst in the derivatives research division of an international securities firm. Nuess supervisor, Ctia Pereira, asks her to conduct an analysis of various options trading strategies relating to shares of three companies: IZD, QWY, and XDF. On 1 February, Nues gathers selected option premium data on the companies, which is presented in Exhibit 1.

Exhibit 1.Share Price and Options Premiums as of 1 February (share prices and option premiums are in euros)

	Share Price	Call Premium	Option Date/Strike	Put Premium
		9.45	April/87.50	1.67
IZD	93.93	2.67	April/95.00	4.49
		1.68	April/97.50	5.78
		4.77	April/24.00	0.35
QWY	28.49	3.96	April/25.00	0.50
		0.32	April/31.00	3.00
		0.23	February/80.00	5.52
XDF	74.98	2.54	April/75.00	3.22
		2.47	December/80.00	9.73

Nues considers the following option strategies relating to IZD.

Strategy 1	Constructing a synthetic long put position in IZD
Strategy 2	Buying 100 shares of IZD and writing the April 95.00 strike call option on IZD
Strategy 3	Implementing a covered call position in IZD using the April 97.50 strike option

Nues next reviews the following option strategies relating to QWY.

Strategy 4	Implementing a protective put position in QWY using the April 25.00 strike option
Strategy 5	Buying 100 shares of QWY, buying the April 24.00 strike put option, and writing the April 31.00 strike call option
Strategy 6	Implementing a bear spread in QWY using the April 25.00 and April 31.00 strike options

Finally, Nues considers two option strategies relating to XDF.

Strategy 7	Writing both the April 75.00 strike call option and the April 75.00 strike put option on XDF
Strategy 8	Writing the February 80.00 strike call option and buying the December 80.00 strike call option on XDF

Over the past few months, Nues and Pereira have followed news reports on a proposed merger between XDF and one of its competitors. A government antitrust committee is currently reviewing the potential merger. Pereira expects the share price to move sharply up or down depending on whether the committee decides to approve or reject the merger next week.

Pereira asks Nues to recommend an option trade that might allow the firm to benefit from a significant move in the XDF share price regardless of the direction of the move.

8. Based on Exhibit 1, the maximum gain per share that could be earned if Strategy 7 is implemented is:
   1. 5.74.
   2. 5.76.
   3. unlimited.
9. Based on Exhibit 1, the best explanation for Nues to implement Strategy 8 would be that, between the February and December expiration dates, she expects the share price of XDF to:
   1. decrease.
   2. remain unchanged.
   3. increase.
10. The option trade that Nues should recommend relating to the government committees decision is a:
    1. collar.
    2. bull spread.
    3. long straddle.