1.  Use Option Tutor's default data set for IBM prices to construct and graph each of the following option trading strategies.  Suppose based upon your expectations of future market movements you hold the following option positions.  Evaluate each strategy in terms of the following characteristics:

·  Expected direction of market

·  Profit potential

·  Loss potential

·  Whether market volatility is good for your position or hurts your position.

a)   Buy 10 IBM put options, with a strike price equal to 50.

b)   Buy 10 IBM put options, strike = 50

      plus buy 10 IBM call options long, strike 50.

c)   Write 10 IBM call options, strike 45.

d)   Write 10 IBM call options, strike 65.

       plus buy 10 IBM put options, strike 45.

e)   Buy 10 IBM call options, strike 45

      plus write 10 IBM call options, strike 50

      plus write 10 IBM call options, strike 55

      plus buy 10 IBM call options, strike 60.

This option trading strategy is called the “condor.”  When you graph this strategy you can see why.

f)   Write 10 put options, strike 65

      plus buy 10 put options, strike 55

      plus write 10 call options, strike 65

      buy 10 call options, strike 55.

2.   Suppose you have the following assessment of the market:

·     Expected market direction:  Either up or down, but more likely down.

·     Expected Market Volatility:  Very high.

Suppose your risk characteristics are such that you would like limited loss potential and large profit potential.

Construct an option trading strategy that fits both your expectations and risk profile.

3.   Suppose you have the following assessment of the market:

·  Expected market direction:  neutral trend.

·  Expected Market Volatility:  very low

Suppose your risk characteristics are such that you would like limited loss potential and large profit potential.

Construct an option trading strategy that fits both your expectations and risk profile.

4.   Explain the role of the clearinghouse in an options market.