Question 3

An investor believes that there will be a big jump in a stock price, but is uncertain as to the direction. Identify five different strategies the investor can follow. Compare and explain the differences among them.

Question 4 (10 marks)

An investor has a bearish view of the stock, which he would like to take advantage of by constructing an option 'spread' strategy. Your goal is to maximize the initial cash inflow using this strategy. Suppose there exists the following options on the same underlying share of the stock. The share is currently trading in the market at $40.