A well-known investment bank released a bullish report on ABC stock last Friday. Several investment analysts from the bank believe ABC stock shares could rally more than 70% over the next two years. The recent trading information for the last two weeks showed that the ABC stock shares had fallen in seven of ten trading sessions, giving up 5.7%. The stock is up by $2.00 today, at $50.15 per share and has added 3.1% over the last two trading days.

Question 1: Comment on the trading information on the ABC stock options shown in the above table in terms of implementing a collar strategy for the stock.

Question 2: Assume that the bullish report on ABC stock is correct. Given the information on the stock from both the stock and option markets, discuss why a long collar strategy is good for long-term investors looking to acquire the stock shares. Your answer to this question should discuss the benefits of the long collar strategy based on the call and put assigned to you. You need to use the given information on the stock to support your arguments.

Call and put assigned

Call strike 50.5

Put strike 42.5