The goal of this assignment is to learn about various option strategies and related issues: the profits at expiry, the maximum loss and under what conditions it happens, the maximum gain and under what conditions it happens, the breakeven price etc.

If you find it easier to write out the assignment by hand instead of doing it electronically, that is fine with me too.

From Yahoo.com, obtain GOOGs call and option price as of the close of the 8^th week of class for the third-month expiry contracts. That is, if we are in November, then choose the February-expiry contract.

[In Yahoo Finance, type in GOOG, you will see data on GOOG. On the left of the screen, you will see a link for options and you can see the entire list of options. Please note that if you dont download the prices by the next day, you will not be able to get the prices from Yahoo.com.]

Then, do the following.

Assume you already own the stock. You decide to buy a protective put. Write the profits (or value) using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes. An example is given below.

	Stock	Buy Put @ 430	Value
ST 430	ST	430 - ST 8	422
ST > 430	ST	0 8	ST - 8

Choose the option whose exercise price is just below 5% off the current price. Graph your portfolio value as a function of S_T. What is the lowest value your portfolio could fall to? What is the maximum and minimum portfolio value that your portfolio could reach?

Assume you already own the stock. You decide to write a covered call. Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes. Choose the option whose exercise price is just above 5% off the current price. Graph your portfolio value as a function of S_T. What is the maximum and minimum portfolio value that your portfolio could reach?

Assume you already own the stock. You choose to write a collar. Write the profits (or value) using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes. Choose the out-of-the-money put option whose exercise price is just below 5% off the current price. Choose the out-of-the-money call option whose exercise price is just above 5% of the current price. Graph your portfolio value as a function of S_T. What is the maximum and minimum portfolio value that your portfolio could reach?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a bull spread created using calls. Choose the long exercise price such that that is just above the current price. Choose the short call exercise price to be $20 above the long call exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of S_T. What is the break-even price and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a bear spread created using calls. Choose the short call exercise price that is just above the current price and choose the long call exercise that is $20 above the short call exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of S_T. What is the break-even price and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a short strangle. Choose the option whose exercise price is just below 5% off the current stock price and just above 5% off the current price. Graph the profit profile as a function of S_T. What are the break-even prices and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a short iron butterfly. Choose the option whose exercise price is just below the current stock price for the ATM call and put options. Choose the option whose exercise price is just below 5% off the current stock price for the OTM put option. Lets say the exercise price of this OTM option is $20 from the exercise price of the ATM option. Then chose the exercise price of the OTM call option to be $20 above the exercise price of the ATM option. Graph the profit profile as a function of S_T. What are the break-even prices and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

The next 4 questions are bonus questions. If you do these, you can get an additional 10 bonus points. That is, you could potentially get 110 points for this assignment.

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a bull spread created using puts. Choose the short put exercise price such that that is just above the current price. Choose the long put exercise price to be $20 below the short put exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of S_T. What is the break-even price and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a bear spread created using puts. Choose the long put exercise price that is just below the current price and choose the short put exercise that is $20 below the long put exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of S_T. What is the break-even price and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a short straddle. Choose the option whose exercise price is just below the current stock price. Graph the profit profile as a function of S_T. What are the break-even prices and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Write the profits using notations used in class (X, S_T, P_P, P_C) under appropriate stock price regimes for a short condor. Choose the option whose exercise price is just below 5% off the current stock price for the short OTM put options. Choose the option whose exercise price is just above 5% off the current stock price for the short OTM call options. For the long put option, choose exercise price that is $20 less than the exercise price of the short put option. For the long call option, choose exercise price that is $20 more than the exercise price of the short call option. Graph the profit profile as a function of S_T. What are the break-even prices and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?