The following information relates to Questions 17-20. Mick Taylor is portfolio manager of a well-diversified, large-cap U.S. equity fund. Recently, Taylor and his team have been overweight cash, luckily avoiding a large drawdown in the S&P 500. After a near 30% decline in the headline index, Taylor is feeling more optimistic about U.S. equity prices. However, Taylor notices that implied volatility, derived from the S&P 500 options chain, remains 3 at abnormally high levels. Hence, Taylor decides to express his bullish views via index options, rather than risking the fund's full cash amount by investing in individual stocks. Taylor also believes the elevated levels of volatility are likely to decline during the next few months. Details on the S&P 500 3-month option chain are shown below. The S&P 500 Index is currently trading at 2785. The index multiplier is 100. Calls Strike $Bid $Ask Implied Vol Delta Open Intertest 2575 308.4 312.7 .4127 .6955 8,183 2650 253.8 285.2 .3931 .6411 10,264 2785 164.9 167.9 .3510 .5259 2,857 2900 101.6 103.9 .3164 .4073 47,984 3000 58.5 60.7 .2874 .2948 51,659 Puts Strike $Bid $Ask Implied Vol Delta Open Intertest 2575 104.9 106.9 .4048 -.3019 13,023 2650 125.2 127.3 .3840 -.3564 32,573 2785 170.2 172.8 .3439 -.4745 2,099 2900 221.0 224.6 .3087 -.5959 47,741 3000 277.6 281.6 .2785 -.712 48,256 17. Taylor decides to execute a bull spread using puts. Taylor is most likely to A. Buy the 2900 strike put and sell the 2650 strike put B. Buy the 2650 strike put and sell the 2900 strike put C. Buy the 2900 strike put and sell 3000 strikes put 18. To take advantage of his view that implied volatility is likely to fall during the next several months, Taylor is most likely to A. Sell the 2785 call and buy the 2785 put B. Sell the 2785 call and sell the 2785 put C. Buy the 2785 call and buy the 2785 put 19. If Taylor bought the 2650 call and sold 2900 call, Taylor would have A. Unlimited upside potential and limited downside B. Limited upside potential and unlimited downside potential C. Limited upside potential and limited downside potential 20. If Taylor sold the 2785 strike straddle, and at expiration, the S&P 500 closed at 2700, the profit and loss per option contact is closest to A. $8,500 Gain B. $8,500 Loss C. $27,010 Gain