The table below shows the option book for the European options tradable for the share of ABC PLC expiring on 19^th June 2020. On 1^st June 2020, an investor intends to develop an option trading strategy. The share price of ABC PLC on 1^st June 2020 is 104.9p per share.

Calls				Puts
Strike	Bid	Ask	Last	Strike	Bid	Ask	Last
100	5.8	6.3	6.1	100	1.0	1.1	1.0
105	2.7	2.9	2.8	105	2.8	3.0	2.9
110	1.1	1.3	1.2	110	5.7	6.6	6.0

Question 19: Identify the breakeven price for a long call strategy with a strike price of 110p per share

a) 108.9p

b) 108.7p

c) 110.0p

d) 111.1p

e) 111.3p

Breakeven price is a way of determining the price point at which a product would generate no profit. In other words, it is the point at which the sum of costs and revenues equals the sum of revenues.

Question 20: Identify the maximal downside per share of a strangle strategy

a) -2.1p

b) -2.4p

c) -7.6p

d) -5.9p

e) -12.9p

Question 21: Identify the net payoff per share of a butterfly strategy using calls if the underlying share price is 104p per share

a) 3.3p

b) 2.9p

c) 2.3p

d) 1.8p

e) 1.9p

Question 22: Identify the maximal downside per share of an optimal butterfly strategy

a) -0.7p

b) -1.1p

c) -2.1p

d) -2.2p

e) Unlimited

Question 23: Identify the net payoff per share of a strap strategy if the underlying share price is 108p per share

a) -2.2p

b) -2.8p

c) -2.9p

d) -5.3p

e) -5.9p

Question 24: Assume the investor expects the share price of ABC on 19^th June 2020 to equal 96p per share. Identify which of the following strategies a rational investor would prefer

a) Butterfly

b) Straddle

c) Strangle

d) Strip

e) Strap