Question
12. A put and a call have the following terms: Call: strike price $ 30 term three months price $ 3 Put: strike price $
12. A put and a call have the following terms: Call: strike price $ 30 term three months price $ 3 Put: strike price $ 30 term three months price $ 4 The price of the stock is currently $ 29. You sell the stock short. Illustrate how to use the call or the put to reduce your risk exposure.
a) What is the maximum possible profit on the position?
b) What is the maximum possible loss on the position?
c) What range of stock prices generates a profit?
d) What advantage does this position offer?
14. A straddle occurs when an investor purchases both a call option and a put option. Such a strategy makes sense when the individual expects a major price movement but is uncertain as to the direction. For example, a firm may be a rumored takeover candidate. If the rumor is wrong, the stock
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