1. For S = 100, X = {80, 85, 95, 100}, We have the following European call and put option.

C(X=80) P(X=80)

C(X=85) P(X=85)

C(X=95) P(X=95)

C(X=100) P(X=100)

An investor wants to use the above options to create a payoff structure as below.

Payoff ($)

80 85 95 100 Stock Price ($)

Answer the following questions.

A. How would you set up a trading strategy using call options only (i.e., what options would you buy and/or sell)?

B. How would you set up a trading strategy using put options only (i.e., what options would you buy and/or sell)? [Hint: Same as part A of this question, except using puts.]

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