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Use the table below for Cisco Options to answer the following questions: CALLS PUTS...

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Finance

Use the table below for Cisco Options to answer the following questions:

CALLS PUTS

Strike

Mar

Mar

100

5.50

2.50

105

3.50

3.25

Current the stock price is $98.

  1. Construct a STRIP strategy (= a portfolio of a long position in one call and two puts with the same strike price and expiration date) using 100 calls and puts. Determine the profits and graph the results. Identify the break even stock price and the maximum and minimum profits. Explain the situation under which you may consider this strategy.
  2. Construct a BOX (ALLIGATOR) SPREAD strategy (= a portfolio of buying a bull call spread together with the corresponding bear put spread, with the same strike prices and expiration dates). Recall that bull call spread = long call with a lower strike price + short call with a higher X; bear put spread = long put with a higher X and short put with a lower X. Determine the profits and graph the results. Identify the break-even stock price and the maximum and minimum profits. Explain the situation under which you may consider this strategy.

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