FINC300: Analysis of Derivative Securities

1.COVID-19 and Stock MarketVolatility

a. WHY might Investor Sam be more inclined to create a bear spread (as opposed to a bull spread)? Next, assume Sams creates a bear spread using two put options, X1and X2. Sketch a graph of this position. (You may use a single or 3 separate graphs. Please be sure to use dotted lines or a colour pencil to illustrate the synthetic position.)

b. Create a bear spread using two call options. (You may use 3 separate graphs. If, however, you use a single graph, be sure to use dotted lines or a colour pencil to illustrate the synthetic position.)