The following options prices were observed for calls and puts on Lannister Ltd for the trading day of July 6 2019. Use this information in Questions 3-8. The stock was priced at $163.37. The expirations were July 17, August 21 and October 16. The continuously compounded risk-free rates associated with the three expirations were 0.0517, 0.0542 and 0.0565, respectively. The options have European expiries.

Lannister Calls				Lannister Puts
Strikes	Jul	Aug	Oct	Jul	Aug	Oct
150	9.50	11.25	13.61	0.17	1.18	2.69
155	5.70	7.96	10.88	0.71	2.66	4.44
160	2.23	5.01	8.04	2.22	4.63	6.60
165	0.77	2.79	6.90	5.61	7.42	8.81

Question: Showing all formula and workings where applicable; Let the standard deviation of the continuously compounded return on the stock be 20 percent. Ignore dividends. Respond to the following:

a. (answered) c =7.4014

b. Based on your answer in part a, recommend a riskless strategy.

c. If the stock price decreases by $1, how will the option position offset the loss on the stock?

d. (answered) p = 4.248751

e. Based on your answer in part d, recommend a riskless strategy.

e. If the stock price decreases by $1, how will the option position offset the loss on the stock?

f. Buy 100 shares of Lannister Ltd at $163.37 and short one October 165 call. Hold the position until expiration. Determine the profits. Identify the strategy, breakeven stock price at expiration, the maximum profit, and the maximum loss. Discuss any special considerations associated with this strategy.

g. Buy 100 shares of Lannister Ltd at $163.37 and go long one October 160 put. Hold the position until expiration. Determine the profits. Identify the strategy, breakeven stock price at expiration, the maximum profit, and the maximum loss. Discuss any special considerations associated with this strategy.

h. Construct an options strategy by going short one October 160 call and long one October 165 call using Lannister Ltd options. Hold the position until expiration. Determine the profits. Identify the strategy, breakeven stock price at expiration, the maximum profit, and the maximum loss. Discuss any special considerations associated with this strategy.

i. Construct an options strategy by going long one October 165 put and long one October 165 call using Lannister Ltd options. Hold the position until expiration. Determine the profits. Identify the strategy, breakeven stock price at expiration, the maximum profit, and the maximum loss. Discuss any special considerations associated with this strategy.