On 1 April 2021, Tencent stock price was $630

Tencent: 630 call $26.00; 600 call $43.80; 660 call $14.30 and

Tencent. 630 put $22.90; 600 put $11.27; 660 put $41.70.

Both call and put options are expired at 29 April 2021. (1 contract = 100 shares)

You bought 200 shares of Tencent at $630 with total cost $126,000.

You constructed 1 contract of an Out of The Money (OTM) covered call strategy

You constructed 1 contract of an In of The Money (ITM) protective put strategy.

2a) Explain with arguments of your investment expectation of the OTM covered call strategy.

Which call option do you select?

2b) Explain with arguments of your investment expectation of the ITM protective put strategy.

Which put option do you select?

Today is 29 April 2021. Assume that Tencent closes at $650.

2c) Complete the payoff table (use the table below) and draw the payoff diagram of the Out of

The Money (OTM) covered call strategy.

2d) Complete the payoff table (use the table below) and draw the payoff diagram of the In of

The Money (ITM) protective put strategy.

Payoff table of Covered Call

ST X

ST > X

Explanation and

Calculation if any

Payoff of stock

Payoff of written call

Total

Profit per share

Call Option

Profit or (Loss)/share

Total Profit/share4

Payoff table of Protective Put

ST X

ST > X

Explanation and

Calculation if any

Payoff of stock

Payoff of written put

Total

Profit per share

Put Option

Profit or (Loss)/share

Total Profit or (Loss)

per share