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I have a question like this.

Assume today's date is 9 January 2016 and XYZ's share price stands at $10. On 8 November 2016 there is a Presidential election and you believe that depending on who is elected, XYZ's share price with either rise or fall by approximately 10%。 Please construct a portfolio of options which will do well if you are correct. Is is the best option?

Calls and puts are available with expiry dates in March, June, September, December and with strike pieces of $10$ plus or minus $0.50$.

My solution is Buy a call option with strike price $E_{1}=9.50$ and a put option with strike price $E_{2}=10.5$. Let $S$ be the value of XYZ. We get the payoff function is $$ max(S-E_{1}, 0) + max( E_{2}-S, 0) $$

Is this the option we can maximize our profit if our view is correct? How can we prove our claims? Is there any general principle for such constructions ?

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That depends on the price of the options – Bob Jansen Nov 8 '13 at 19:00
Thanks very much. – user2781712 Nov 9 '13 at 0:17

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