c) What are the payoff, cost and profit of a long put bear spread with strike prices of $1,125

and 1,240 if the GOOG share price become $1,210.55 on the expiration date?

[2+2+2 =6 marks]

Payoff: $1240 - $1210.55 = $29.45

Cost: $95.60 - $42.60 = -$53

Profit: $29.45 - $53 = -$23.55

d)Calculate the payoff, cost and profit form a long box spread based on (b) and (c). What

strategy is better (call bull/put bear/box)? Explain.

Payoff:

Cost:

Profit:

Which strategy & why?: Long call bull spread strategy is better. Between the put bear and box strategy, it gives more profit.

1.(a) If you feel that Stock price can go up to $1,400 or can go down to $1,000, but you aren't sure

about the direction, what strategy would be more appropriate when you choose options

with strike price of 1,220. Calculate the payoff and profit of the strategy.

Strategy:

Payoff:

Profit:

(b) At what stock price(s) your profit would be zero in the above case.

(c) If you expect stock price is more likely to go up to $1,400, what strategy would better

serve you? Calculate payoff and profit of the strategy.

Payoff:

Profit:

(d) Calculate the range of stock prices beyond which your profit would be positive if you

follow the strategy in (c)?