As a manager, you receive 10,000 shares of your company stock as part of your compensation. The current stock price is $40. You plan to sell your stock next December so as to prepare as a down payment for your new house. You are concerned that the stock price might go below $35, in which case your down payment might not be enough. If the stock price rises to $45, you will be satisfied enough as you will have a down payment as well as some additional cash reserve.

What (a) would your portfolio value assuming you establish a strategy of a zero cost collar by writing (selling) December calls on your stock (premium of $3 and a strike price of $45) and buying the December puts on your stock (premium of $3 and a strike price of $35); (b) what is the benefit of the collar strategy in your case? (note: consider the transaction cost)

(a)

	Price of the Stock Next December
	$30	$40	$50
Portfolio value

(b)