Question 7: Stephanie is trying to decide which strategy would perform better. The strategies are: 1. Short a 1-year call option with a strike price of 15 and Short a 1-year put option with a strike price of 15 2. Short a 1-year call option with a strike price of 15, Short a 1-year put option with a strike price of 15, Long a 1-year call option with a strike price of 20 and Long a 1-year put option with a strike price of 10 The prices of the options on this stock are: Strike Price Call option Put option 10 3 2 15 2 4 20 1 5 The annual interest rate is 5%. Draw the profit diagram for both strategies. Which strategy would perform better and by how much if the stock price one year from now is 25. Name the 2 strategies. Solution