(a) First, consider a covered call strategy involving the purchase of GS stock and a $230 strike price call. What is the 6 month holding period return (before any taxes) from this covered call strategy in all three return states? $230 $2.75 Call Strike Price Call Premium Covered Call HPR with GS Decline Covered Call HPR GS Unchanged Covered Call HPR with GS Increase Current GS Stock Price (1) Decline in Down State (2) Unchanged Return (3) Increase in Up State Option Time to $210 -25% 0% (b) Next, consider a protected put strategy involving the purchase of GS stock and a $190 strike price put. What is the 6 month holding period return (before any taxes) from this protected put strategy in all three return states? 35% 0.5 Put Strike Price $190 $3.00 Put Premium Protected Put HPR with GS Decline Protected Put HPR GS Unchanged Protected Put HPR with GS Increase (c) 6 Month Options Chain for Goldman Sachs (GS) Call Price Strike Price Put Price $40.00 $170 $0.90 $32.50 $180 $1.75 $24.00 $190 $3.00 $15.00 $200 $4.75 $9.00 $210 $10.00 $5.25 $220 $15.00 $2.75 $230 $21.50 $1.25 $240 $33.00 $0.75 $250 $40.00 Finally, consider a collar strategy involving the purchase of GS stock, a call at a $220 strike price, and a put with a $200 strike price. What is the 6 month holding period return (before any taxes) from this collared equity strategy in all three return states? Call Strike Price Call Premium Put Strike Price Put Premium Collared Equity HPR with GS Decline Collared Equity HPR GS Unchanged Collared Equity HPR with GS Increase $220 $5.25 $200 $4.75 (d) Calculate the standard deviation of returns across each state of GS returns (assuming each state is equally likely to occur) for each strategy. If your boss tells you he/she needs you to minimize risk across all states, which of these three strategies (Covered Call Protected Put, or Collared Equity) are you going to choose? Standard Deviation of Covered Call Standard Deviation of Protected Put Standard Deviation of Collared Equity Risk Minimizing Strategy (a) First, consider a covered call strategy involving the purchase of GS stock and a $230 strike price call. What is the 6 month holding period return (before any taxes) from this covered call strategy in all three return states? $230 $2.75 Call Strike Price Call Premium Covered Call HPR with GS Decline Covered Call HPR GS Unchanged Covered Call HPR with GS Increase Current GS Stock Price (1) Decline in Down State (2) Unchanged Return (3) Increase in Up State Option Time to $210 -25% 0% (b) Next, consider a protected put strategy involving the purchase of GS stock and a $190 strike price put. What is the 6 month holding period return (before any taxes) from this protected put strategy in all three return states? 35% 0.5 Put Strike Price $190 $3.00 Put Premium Protected Put HPR with GS Decline Protected Put HPR GS Unchanged Protected Put HPR with GS Increase (c) 6 Month Options Chain for Goldman Sachs (GS) Call Price Strike Price Put Price $40.00 $170 $0.90 $32.50 $180 $1.75 $24.00 $190 $3.00 $15.00 $200 $4.75 $9.00 $210 $10.00 $5.25 $220 $15.00 $2.75 $230 $21.50 $1.25 $240 $33.00 $0.75 $250 $40.00 Finally, consider a collar strategy involving the purchase of GS stock, a call at a $220 strike price, and a put with a $200 strike price. What is the 6 month holding period return (before any taxes) from this collared equity strategy in all three return states? Call Strike Price Call Premium Put Strike Price Put Premium Collared Equity HPR with GS Decline Collared Equity HPR GS Unchanged Collared Equity HPR with GS Increase $220 $5.25 $200 $4.75 (d) Calculate the standard deviation of returns across each state of GS returns (assuming each state is equally likely to occur) for each strategy. If your boss tells you he/she needs you to minimize risk across all states, which of these three strategies (Covered Call Protected Put, or Collared Equity) are you going to choose? Standard Deviation of Covered Call Standard Deviation of Protected Put Standard Deviation of Collared Equity Risk Minimizing Strategy