The common stock of the P.U.T.T. 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 $110 per share, the price of a three-month call option with an exercise price of $110 is $9, and a put with the same expiration date and exercise price costs $7.

A)

What would be a simple options strategy to exploit your conviction about the stock prices future movements?

Group of answer choices

Buy a put option and sell a call option on the stock.

Sell both a put option and a call option on the stock.

Sell a put option and buy a call option on the stock.

Buy both a put option and a call option on the stock.

B) Suppose that you use the options strategy in the previous question. How far would the price have to move up above for you to make a profit on your initial investment?

C) Suppose that you use the options strategy in the previous question. How far would the price have to move down below for you to make a profit on your initial investment?