The common stock of a corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $70, and the price of a three-month call option at a strike price of $70 is $7. (a) If the risk-free force of interest is 10% per year, what must be the price of a three-month put option on the stock at a strike price of $70?

(b) What would be a simple options strategy to exploit your conviction about the stock prices future movements? How far would it have to move in either direction for you to make a profit on your initial investment?