Jacob, the foundation manager, holds a company called Walk2campus. He believes that the share price of Walk2campus, a hotel operating company, will be significantly influenced by the outcome of Rock hills bid to host a football tournament. If Rock hill is selected, she believes that share price would rise significantly. If Rock hill is not selected, she believes that the share price would fall significantly. Jacob wants to profit from her beliefs by implementing a straddle. She gathers the information shown in Exhibit 3.

Exhibit 3

Walk2campus Share and Options Data

Current share price of Walk2campus	USD 8.80
Annual risk-free rate	1.50%
Price of one month call option, exercise price USD 9.00	USD 0.38
Price of one month put option, exercise price USD 9.00	USD 0.57

1. Determine each of the following:

1. the profit per share on the straddle if the Rock Hill wins the bid and the share price doubles.
2. the two share prices of Walk2campus at which breakeven for the straddle occurs.

3. Explain why each of the following option strategies is less appropriate than a straddle, given Jacobs beliefs:

• bull spread
• short butterfly spread
• zero cost collar