An investor is holding 1,916 shares of Apple stock, which currently trades at $50 per share. The investor believes that the price will rise to $55 in the next 12 months but fears that the price might drop and wants to limit the downside risk to a market price of $45. The investor decides to use a collar strategy by simultaneously writing 150 call options (rights to 150 shares) with a strike price of $55 for a premium of $1.38 and buying 150 put options (rights to 150 shares) with a strike price of $45 for a premium of $1.25. The options expire in January 2018.

Attempt 1/5 for 10 pts.

Part 1

Including the premiums paid and received for the options contracts, if the stock price ends up at $60 on the option expiration date, what will be the value of the portfolio?

Attempt 1/5 for 10 pts.

Part 2

Including the option premiums, if the stock price ends up at $40 on the option expiration date, what will be the value of the portfolio?