A biotech firm is waiting for approval from the Food and Drug Administration for a...
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A biotech firm is waiting for approval from the Food and Drug Administration for a new high tech targeted radiation treatment for cancer. If it get approval to proceed with trials, its stock price will likely increase dramatically. Since this is the only current project it is considering, if it does not get approval its stock price will likely decline dramatically. In an attempt to profit on the uncertainty surrounding its future stock price, you decide to purchase a long call option with an exercise price of 42 for a price of $3 and purchase a long put option with an exercise price of 42 for a price of $2.25. Will the combined trading strategy accomplish the goal of profiting no matter what the FDA decides? Complete the table below for spot prices from 32 to 52 (fill in the table for each price from 32 to 52) in excel then graph the positions in excel and explain if the strategy worked.
