Use the information in the table to answer the following questions. Create one spread per question from the prices in the chart. Create only one option spread for each question. For example if you were going to create a covered write you might want to buy 100 shares at $91 and write a May 100 call against it. Please use a different option than the example. 
 
The stock is trading at $91 per share  
 
 

Calls                                        Puts  

May-85 $7.50                      May-85 $1.50  

May-90 $4.20                      May-90 $3.10  

May-95 $1.90                      May-95 $5.90  

May 100 $0.70                    May 100 $9.80  

1) Create a covered write position a. At what point, do you start to lose money? 

b. At what point to you make a maximum profit? What happens if the stock continues to increase? 

c. Is this a low or high volatility spread? What does volatility mean? 
 
2) Create a vertical spread a

a. What is your maximum profit? At what point do you reach the maximum profit? What happens as the stock increases in value? 

b. What is your maximum loss? At what point do you reach the maximum loss? What happens if the stock continues to decrease in value? 

c. Compare a covered write to a vertical spread. What is the difference in return? What is the difference in risk? 

d. Is this a low or high volatility spread? What does volatility mean? 
 
3) Create a straddle spread a. Above what point do you start making money if the stock goes up? b. Below what point do you start making money if the stock goes down? c. Where do you have a maximum loss? d. Why would you create a position like this? e. Is this a high or low volatility spread? 
 
4) Create a vertical ratio spread

a. If you have a credit from creating the spread (the value of what you sold is greater than what you bought) what is your profit or loss if the stock goes down? 
      
b. Where do you make your maximum profit? 

c. Above what point do you start to lose money? 

d. Is this a high or low volatility spread?