You Obtain the Following Information Concerning a Stock, a Call

question 48

Essay

You obtain the following information concerning a stock, a call option, and a put option You want to purchase the stock but also want to use an option to reduce your risk of loss.
a. Do you purchase the put or the call or do you sell the put or the call?
b. What is the cash inflow or outflow from your position?
c. What is profit or loss if the price of the stock stagnates and trades for $42 after three months?
d. What is profit or loss if the price of the stock trades for $50 or $100 after three months?
e. What is profit or loss if the price of the stock trades for $30 after three months?

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Definitions:

Exporting Industry

An industry that primarily produces goods or services for consumption outside the domestic market.

Imported Good

A product or commodity that is brought into one country from another for sale or use.

Exported Good

A product produced domestically but sold to buyers in another country.

Free International Trade

Trade between countries without restrictions such as tariffs, quotas, or other barriers.