Question 8: In looking at the premium of options one will notice that the premium declines as the price of the option increases. Why does this happen?

Question 9:

When would an investor construct a long straddle? What kind of market conditions is the investor expecting to happen? What is the difference between a straddle and a strangle? (Hint: think BHP example from class)

Question 10:

You want to construct a bull spread with call options. You buy a call option with a strike of 105 and a premium of 7.00 and you sell a call for 110 with a premium of 4.70. When do you break even? What is your maximum gain at what price(s)? What is your maximum loss at what price(s)? Please draw a contingency graph to show graphically the outcome at different stock price levels.