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Section C (30%) - Integrated Questions Answer all questions in this section. Each question carries...

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Section C (30%) - Integrated Questions Answer all questions in this section. Each question carries 15 marks. Question ci The following European options of Woodtea Company are available in the market: Options Exercise Price Option Price Expiration Date Call No. 1 $55 $7 30 Jun 2020 Call No. 2 $60 $4 30 Jun 2020 Put No. 1 $55 $2 30 Jun 2020 Put No. 2 $60 $3 30 Jun 2020 Wendy expects stock price of Woodtea will decrease in the future due to widespread of COVID-19 and is considering the following option strategies: (1) Long one Put No. 2 (2) Short one Call No. 1 (3) Short one Call No. 1 and long one Call No. 2 Required: (a) Calculate the following figures related to the above option strategies. (1) Net profit when (ii) Net profit when (iii) Breakeven stock price is $52 stock price is $65 price at expiration at expiration Strategy 1 Strategy 2 Strategy 3 (9 marks) (b) Without any calculations, (1) identify and explain briefly which of the above strategies is the most appropriate to Wendy (2 marks) (ii) explain why the remaining strategies are inferior to the strategy stated in (b)(i). (4 marks)

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