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A derivative strategist is telling clients that they should use a risk reversal strategy position to buy the stock of Target (TGT) on a decline,

A derivative strategist is telling clients that they should use a risk reversal strategy position to buy the stock of Target (TGT) on a decline, and to participate in any rallies. When the stock was $162.88, he suggested clients sell the November $150 put and buy November $165 calls for a cost of $2.81. The risk-reversal strategy positions investors to buy stocks on a decline and to participate in any advances. If the stock is at $180, the call is worth $15. If the stock declines - and this is the key risk - be prepared to buy the stock at the put strike price $150 even if the stock is at $130. Investors also could cover the short put. If the stock is at $130, the put would cost $20. 


A. Please draw a payoff diagram and a profit diagram of the "risk reversal strategy" (sell a put and buy a call) mentioned in this article. You need to give the values key points on your diagrams. 


B. If the stock price is $180, what is the payoff strategy and what is the profit/loss of this strategy? 


C. If the stock price is $130, what is the payoff strategy and what is the profit/loss of this strategy?

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