An investor owns 100,000 shares of IBM stock, which is currently trading at $120 per share. After the recent rally, the investor believes that if the stock breaks out a resistance level of $125, then the stock will go through the roof. If, however, the stock fails to break out, then it will go down to re-test the support level, which is around $80 per share. The investor does not want to miss the chance of IBM stock skyrocketing but she is fearful of a sharp downturn which would wipe out all the gains in the recent rally. She decides to buy 1,000 December 110 put at a price of $3.

Note: Each stock option contract provides for the right to buy or sell 100 shares of stock. December 110 put means that the strike price of the put is 110 and it matures in December.

Questions: If IBM stock soars from $120 to $150, what is the profit associated with the passive strategy? What is the profit associated with the protective put buying strategy? What if the IBM stock plummets from $120 to $80?