1. Trader Joe creates the following option strategy. Joe sells a call option (CALL OPTION 1) with a strike of $36 with premium $3.40. Joe sells a put option (PUT OPTION 1) with strike $36 and premium $2.70. These options are over the same share and with the same maturity The initial income from setting up this strategy is $. Give your answer correct to two decimal places, or your answer will be incorrect.
2. The breakeven share prices for the strategy are: The lower one is $, the higher one is $. Give your answer correct to two decimal places, or your answer will be incorrect.
3. This strategy is called a (bear-spread/long straddle/short strangle/long strangle/bull-spread/short straddle.)
4. Trader Joe thinks about the strategy he has set up and decides he is worried about the losses when the share price drops. He decides to fix this by purchasing a put option (PUT OPTION 2) over the same shares with a strike price of $30 and a premium of $0.60. After implementing this strategy now Trader Joe is short a call option with K=$36, short a put option with K=$36, and long a put option with K=$30, and he is satisfied with the risk profile of this strategy. Trader Joe must think that a share price decline is (chooose less likely or more likely) than a share price increase.
5. The maximum loss that Joe makes on the overall strategy when PUT OPTION 2 finishes in the money is $. Do not include the sign of your answer. Do not include the $ sign. Write your answer to two decimal places.
6. The lower breakeven point for the overall strategy is now $. Write your answer to two decimal places.