You are a wealth manager and one of your clients is an executive who owns 100,000 shares of her own company's stock. She is worried that too much of her personal wealth is tied to the companys fortune, but cannot sell her shares for two years.

The stock price is currently trading at $50 per share, and the stock is not expected to pay any dividends over the next two years. The trading desk at your institution tells you the stock should have a volatility of 35% per year over the next two years, and the risk-free rate is 2% per year (continuously compounded).

i) Design a two-year zero-cost collar transaction that might appeal to your client, i.e. give one combination of put and call positions (in terms of their respective strikes and long vs. short) such that the overall value is zero. Explain how the outcome of your client's investment (stock + zero-cost collar) varies with the price of the stock at the end of two years.

(Hint: there are multiple possible answers to this question)

ii) While your trading desk thinks the volatility of the stock going forward will be 35% per year, the current implied volatility of ATM calls maturing in two years is 45% per year. What kind of trading strategy can the trading desk of your institution engage on? Be very precise in your answer and explain the logic of the trading strategy as well as you can(numbers not needed) .