Many analysts in the stock market believe that the shares of a new biotech firm will exhibit large volatility in the next six months. You disagree and believe that you can profit by selling options to those participants who think the volatility will increase. In case you are wrong, you would like to hedge your risk. The stock is currently selling for $50 per share and you decide to write (sell) a put option for $2.25 with a strike price of $50 and write (sell) a call option for $3.60 with a strike price of $50. To hedge your risk you also buy a call option with a strike price of $56 for $1.30 and buy a put option with a strike price of $44 for $0.50.

Duplicate the following table in Excel and diagram the profit from the individual and combined option positions using Excel:

Did the combined position in part a) of the question accomplish the goals that were stated for you in the problem? Explain

\begin{tabular}{|c|c|c|c|c|c|} \hline Spot Price & Short Put & Short Call & Long Put & Long Call & Combined \\ \hline \multicolumn{6}{|l|}{40} \\ \hline \multicolumn{6}{|l|}{41} \\ \hline \multicolumn{6}{|l|}{42} \\ \hline \multicolumn{6}{|l|}{43} \\ \hline \multicolumn{6}{|l|}{44} \\ \hline \multicolumn{6}{|l|}{45} \\ \hline \multicolumn{6}{|l|}{46} \\ \hline \multicolumn{6}{|l|}{47} \\ \hline \multicolumn{6}{|l|}{48} \\ \hline \multicolumn{6}{|l|}{50} \\ \hline \multicolumn{6}{|l|}{51} \\ \hline \multicolumn{6}{|l|}{52} \\ \hline \multicolumn{6}{|l|}{53} \\ \hline \multicolumn{6}{|l|}{54} \\ \hline \multicolumn{6}{|l|}{55} \\ \hline \multicolumn{6}{|l|}{56} \\ \hline \multicolumn{6}{|l|}{57} \\ \hline \multicolumn{6}{|l|}{58} \\ \hline \multicolumn{6}{|l|}{59} \\ \hline \multicolumn{6}{|l|}{60} \\ \hline \multicolumn{6}{|l|}{61} \\ \hline 62 & & & & & \\ \hline \end{tabular}