You are a corporate Treasurer in charge of managing the cash position of your firm. You have excess cash that you will not need until June 20th (after June expiration) and want to use an options strategy that operates similarly to a bond to get a return on your money in a risk-free way.

(1) Which strategy below best accomplishes your objective?

a straddle

a box

a bear call spread

a butterfly

a calendar spread

(2) Assume you enter into the position you chose from above, and there was a net cost to the spread (for example, using the prices from the table above, you bought the June 120 calls for $15.40, sold the June 120 puts for $9.25, sold the June 120 puts for $11.35 and bought the June 130 puts for $14.25 - all for a net cost (debit) of $9.05). You expect the position price to be $10 at the June expiration.

Since the strategy costs you $9.05 and you expect to get back $10 at expiration, are you synthetically lending or borrowing money by trading the spread? (hint: follow the money going in and out of your account and relate it to buying or selling a bond)

lending

borrowing