Utilise the following information. Call option price $5 with strike price $60, put option price $4 with strike price $55. They both expire 90 days from now and are written on the same stock. A client believes the stock price could move substantially in either direction in reaction to an expected court decision involving the company. The client currently owns no stocks.

1. Draw the profit and loss graph of long strangle (2 marks)

2. Draw the profit and loss graph of short strangle (2 marks)

3. What is your advice about implementing a strangle strategy, i.e., choosing a long or a short strangle, to capitalize on the possible stock price movement. (1 mark)

4. At expiration, for the appropriate strangle strategy, what is the maximum possible loss per unit of strategy? (1 mark)

5. At expiration, for the appropriate strangle strategy, what is the maximum possible gain per unit of strategy? (1 mark)

6. What are the break-even stock prices? (2 marks)