You are interested in purchasing a straddle on TSLA stock but arent sure which strike price is the best value. Assume that todays stock price S0 is 1000, and you can model TSLA shares with a 3-period binomial model with the following characteristics:

At each time interval, the stock can go up by a factor of 1.25 or down by a factor of 0.95. The interest rate is 1% per period. You can choose either the strike of 990 or 1100 (but you have to buy a call and put at the same strike)

Question X.1-

1)Draw the price paths for the stock and all 4 options, including at-expiration values for each option.

2)Your friend notices the ending stock values and that 3 of them are above the 1100 strike price on the call. Does this mean the call option is a good deal? Why or why not?

3)What are the breakeven prices for the 900 strike straddle? (At what stock price do you have zero profit or loss)?