What would be a simple options strategy to exploit

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Question: The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $95 per share, and the price of a 3-month call option at an exercise price of $95 is $6.00.

a. If the risk-free interest rate is 7% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $95? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Calculate the put call parity put-call parity.

b. What would be a simple options strategy to exploit your conviction about the stock price's future movements. How far would it have to move in either direction for you to make a profit on your initial investment? (Round your intermediate calculations and final answer to 2 decimal places.)

Which strategy is this? (collar, covered call, protective put, spread, or straddle)

What is the price change for profit in this scenario?

Reference no: EM133432386

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