You are interested in investing in Peloton Interactive Inc (PTON) common stocks which is currently (Nov. 26, 2021) trading at $46.41. You have two investment strategies in mind: 1. Simply 100 shares of Peloton at $46.41 per share. 2. Form a protective collar. That is: 2.1. Buy 100 shares of Peloton at $46.41 per share. 2.2. Write one call option: Pc = $7.50, EC = $55.00, Expiration: 2022-07-15 2.3. Buy one put option: Pp = $4.55, Ep = $35.00, Expiration: 2022-07-15 Given the information above, complete the following table (show your work) and draw the profit diagram for both investment strategies. If you are 1) to some extent bullish about the stock, 2) not optimistic that its price will increases considerably (i.e., more than 20%) in the short run, 3) and worried about a possible sharp decline in its price, which investment strategy will you take and why? Price @ Expiration Net Profit (loss) if you invest in Stock only protective collar 25.00 $(2,141.00) (1) $(846.00) (2) 30.00 35.00 40.00 43.46 45.00 46.41 50.00 55.00 57.95 60.00 65.00

2 If Price @ Expiration = $25.00 (1) Profit (loss) = (PS Pbuy) num. of shares = (25.00 46.41) 100 = -$2,141.00 (loss) (2) Profit (loss) = Profit (loss) from buying shares + Profit (loss) from writing one call option + Profit (loss) from buying one put option Profit (loss) = [ (PS Pbuy) num. of shares ] + { Min [ PC , (EC - PS) + PC )] 100 } + { Max [- PP, (EP PS) - PP)] 100 } Profit (loss) = [ (25.00 46.41) 100 ] + { Min [ 7.50, (55.00 25.00) + 7.50) ] 100 } + { Max [- 4.55, (35.00 25.00) 4.55) ] 100 } Profit (loss) = - 2,141.00 + (7.50 100) + (5.45 100) = - 2,141 + 750 + 545 = - $846.00 (loss)