Q1: (Covered Call and Protective Put) An investor buys 1 share of stock XYZ at $80 but now has a short term bearish view on the stock. The investor sees that the following options are traded with high liquidity and considers some option strategies. (In your answers, assume that options are traded at the mid-point of bid and ask prices and the transaction costs are zero.)

Option Type	Maturity	Strike Price	Bid	Ask
Call	Nov 20, 2020	$90	$2.00	$2.10
Put	Nov 20, 2020	$70	$0.80	$0.90

1. Covered Call Strategy

1. (2) Explain how the investor can use the above option(s) to construct a covered call strategy.

2. (4) If the stock price stays at $80 on the option maturity date, what would happen? In this case, what is the total portfolio value (or payoff) of the investor? What is the total profit/loss of the covered call strategy?

3. (4) If the stock price goes up to $85 on the option maturity date, what would happen? In this case, what is the total portfolio value (or payoff) of the investor? What is the total profit/loss of the covered call strategy?

2. Protective Put Strategy

1. (2) Explain how the investor can use the above option(s) to construct a protective put strategy.

2. (4) If the stock price stays at $80 on the option maturity date, what would happen? In this case, what is the total portfolio value (or payoff) of the investor? What is the total profit/loss of the protective strategy?

3. (4) If the stock price goes down to $75 on the option maturity date, what would happen? In this case, what is the total portfolio value (or payoff) of the investor? What is the total profit/loss of the protective strategy?