16. The following is from an article titled Analytic Uses Options to Protect Tenneco Posi- tion" that appeared in the November 16,1992, issue of Derivatives Week, p. 7: Analytic Investment Management in Irvine, CA., last Monday sold 70 Nov. 40 puts and bought 70 Feb. 35 puts on Tenneco for its Analytic Optioned Equity Fund-a derivatives-driven mutual fund, according to Chuck Dobson, the fund's executive v.p. By selling and buying an equal number of exchange-traded puts, the firm maintained a fully-hedged position while using profits its options to counterbalance paper losses on the 7,000 Tenneco shares it owns for a net gain of 18 per option, Dobson said. Though Dobson could not give the price at which the stock was bought, he noted that since Tenneco was trading around $35 last Monday, the 7,000 shares were worth roughly $245,000, or about 0.27% of the total $91 million portfolio. Dobson explained that the firm takes a nondi- rectional approach to picking stock, relying instead on the stock's volatility, option premium and dividends Dobson explained that the fund, which contains 130-140 mostly high capitalization stocks, is governed by four basic derivatives-linked strategies: (1) buy a stock and sell a call on the stock; (2) buy a stock and a put on the stock; (3) sell a put and place the exercise price in a cash reserve fund; and (4) buy a call and place the exercise price in a money market fund. Explain the option strategy cited in the first paragraph of this excerpt. Be sure to explain what Mr. Dobson meant by the "firm maintained a fully-hedged position. Explain the first two strategies listed in the third paragraph. a. b