1. A trader creates a bear spread on a stock by buying one 6-month $40-strike European put option at $5 and selling one 6-month $35-strike European put option at $3. What is the trader’s profit if he holds his position until maturity of the options and the stock price is $37 then?
A. -$3.00
B. -$1.00
C. $0
D. $1.00
E. $3.00
2. An option investor believes that the stock price of a company will have a big jump in the next 3 months. But he is uncertain about the direction of the jump. Which of following strategies should the investor take to profit from his belief?
A. Sell a straddle
B. Sell a strangle
C. Buy a butterfly spread
D. Buy a straddle
E. Buy a bull spread