1. To analyse the profit and loss possibilities inherent in the option investment strategies, please perform the following analyses for call and put options (profit or loss) on Lotus common stock that mature in February 1994 and that has an exercise price of $55 per share.

1. Buying a call option on Lotus common stock
2. Writing a call option on Lotus common stock
3. Writing a put option on Lotus common stock

*Assume the Lotus common stock selling price at $65 and $50.

2. If you owned Lotus stock, but were concerned of possibility of bad news, how might you use options to protect yourself against the risk of a price decline? Explain your strategy.

Lotus Development Corporation is a leading developer, producer, and vendor of applications software and information services. Its major desktop applications include spreadsheet and word-processing programs, and communications products and services, including groupware and electronic mail offerings. Lotus's stock is traded over the counter on the National Association of Securities Dealers Automated Quotation (NASDAQ) system. Net Oper. Inc. Per Share Stock Price Earnings Dividends High Low PIE Ratio Year Revenues Inc. 55.5 80.4 18 3/4 14 3/4 47-15 21-8 1993 1992 1991 1990 981 900 829 692 556 181 151 154 147 106 43.1 1.24 1.87 0.98 0.54 1.61 Nil Nil Nil Nil Nil 58 3/4 38 3/4 40 3/4 39 1/4 33 1/2 42-15 23.3 68.0 14 3/4 12 1/2 18 73-23 21-11 1989 Lotus Development Corporation's Daily Stock Price Returns, 1993 0.12 0.10 0.08 0.06 0.04 0.02 Return 0 -0.02 -0.04 -0.06 -0.08 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month