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3) The standard contract for the S&P 500 Index Option is $100 times the index. The current level of the index is 1975. A portfolio

3) The standard contract for the S&P 500 Index Option is $100 times the index. The current level of the index is 1975. A portfolio manager is concerned that the stock market may decline. Currently the price of 1 month call options with a strike price of 1950 are priced at $26.14 (times 100 for the contract) and put options are priced at $7.40 (times 100 for the contract) He has 3 strategies hes considering (assume 1 contract size for all transactions):

a. Sell Call Options

b. Buy Put Options

c. Do Nothing

What will be the result of his actions if the index at the end of the month is at the levels indicated in the table (on a per contract basis)? Value of S&P 500 Index at Maturity

Exercise price $1950

Total Dollar Gain or Loss Under the Following Strategy:

If the S&P 500 Index is at following level at the expiry date:

Sell Call Option

Buy Put Option

Do Nothing

1850

1875

1900

1925

1950

1975

2000

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