First identify an option strategy that will make a profit in the given scenario, then you will build Excel models to draw the profit graph for the option strategy. Scenario 1: you believe the price of a stock will stay around current level. a. Design an option strategy that will make a profit and fill out the Strategy Template (please refer to the example on next page). The strategy used in the example is a reverse straddle. Its not the only solution. You are encouraged to come up with a different strategy. You can find the price information from yahoo finance. b. Build Excel Model to draw the profit graph. Use Scatterplot function. Please play with the functions to make the chart look nice. c. Identify the price ranges between which the strategy will generate profit. What is your maximum gain? Maximum loss?

Ex:

\begin{tabular}{|rrrrr|} \hline Strategy Template & \multicolumn{5}{|c|}{} \\ \hline & \multicolumn{4}{|c|}{ Current Stock } \\ Stock & IBM & Price & $123 & \\ \hline Option & Strike & Premium & Position & Units \\ \hline Call & 120 & 4.3 & short & 1 \\ Put & 120 & 1.4 & short & 1 \\ \hline \end{tabular} \begin{tabular}{|rrrrr|} \hline Strategy Template & \multicolumn{5}{|c|}{} \\ \hline & \multicolumn{4}{|c|}{ Current Stock } \\ Stock & IBM & Price & $123 & \\ \hline Option & Strike & Premium & Position & Units \\ \hline Call & 120 & 4.3 & short & 1 \\ Put & 120 & 1.4 & short & 1 \\ \hline \end{tabular}