Please upload your calculations (e.g., an Excel spreadsheet, a Word document, a PDF file, or a picture of your work) for Q22.

Q22. Disney, ticker DIS, closed at around $110 on 5/8. You believe its share price is going to stay in a narrow range around $110 for the next year. To speculate on your belief, you decide to sell a straddle. The straddle strategy is entering the same position in both a call and a put sharing the same underlying, expiration, and strike price. When you sell a straddle, you are selling both the call and the put.

The price of a call option with a one-year expiration written on Disney with an exercise price of $110 is $17. The current stock price of Disney is $110 and the risk-free rate is 10% per year.

(a) What must be the price of the one-year put on the same stock with the same strike price? (6 points)

(b) Construct your position table of the selling of the straddle strategy. Again, you are selling both the call and the put with the same strike price of $110. (10 points)

(c) Plot your position diagram for your strategy. Plot one line for the payoff and one line for the profit. To figure out your profit, use the call price given ($17) and the put price you solved in part (a). (4 points)

(d) At what stock price at expiration (ST) do you make the most money? And what is your maximum profit on this strategy? (2 points)

(e) What are the breakeven prices for this strategy, that is, how far can the stock price move in either direction before you lose money? (6 points)