financial derivatives (options)

1. You are planning to trade a biotech firm's stock that has a drug pending FDA approval. If the drug is approved, the stock price is expected to go up sharply. If it is not approved, the stock will drop sharply. In your view, it is unlikely to move more than 20% in either direction. Assume the stock's price is at $100 and options with strike prices exist in $5 increments (i.e., $85,$90,$95,$100, $105,$110, etc.). a. Describe a portfolio combining straddles and strangles that takes advantage of your views. b. Draw the payoff profiles from part a