Consider the following option trading strategies:

a) The options with strike prices R80, R85, and R90 cost R12, R15, and R19, respectively. Suppose a trader creates a butterfly spread from the options by trading a total of 400 options, determine the maximum net loss to the butterfly spread after considering the cost of the options.

b) The table consists of call and put premiums for 3-month European options with different strike prices for a non-dividend

paying stock with 0 = 40 and r = 0.08 p.a. continuously compounded

Strike Price	Call Option Premium	Put Option Premium
R35	R6.13	R0.44
R40	R2.78	R1.99
R45	R0.97	R5.08

A trader is considering two strategies using the information on the options provided in the table. The first strategy is a strangle consisting of a R35-strike put and a R45-strike call. The second strategy is a R40-strike straddle.

a) Explain how the options can be used to create the first strategy.

b) Explain how the options can be used to create the second strategy.

c).Let S be the stock price in three months. Construct a table that shows the profit for the first strategy.

d) Let S be the stock price in three months. Construct a table that shows the profit for the second strategy.

e) Let S be the stock price in three months. Determine the range of stock prices in 3 months for which the first strategy outperforms the second strategy.