Use the following stock and set of options to answer #1, # 2, and #3 below.

A stock, priced at $84.00, has 3-month call and put options with exercise prices of $80 and $90. The current market prices of these options are given by the following:

Exercise Price	Call	Put
$80	$7.40	$3.00
$90	$2.90	$8.40

3. Alternative new scenario: Assume that you believe the stock price is going to be less volatile than the market expects; and that option prices might decline in the near future if the market recognizes the lower volatility environment.

a) What option strategy would you implement from Chapter 7 to match this low-volatility forecast? (selecting from the call and put options that were provided at the top of page one). Again, use one option contract as your scaling factor in your transactions. What would be your transactions?

(Hint: Recall, that for the speculative strategies from Chapter 7, we always looked at a long-position first, where it cost you money to initially set up the strategy and it corresponded to a particular market forecast. But you could also take a short-position in the strategy; then you initially would have a positive cash flow at time-0, and your forecast would be the opposite to the market forecast for the standard long strategy. Here, your strategy will be to take a short position (or a reverse position) in one of those speculative strategies from Chapter 7. Also, for your answer, there are two acceptable choices for the options to implement the strategy.)