You Obtain the Following Information Concerning a Stock, a Call

question 14

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:

Strip Cropping

An agricultural practice that involves planting crops in long, narrow strips to reduce erosion and runoff.

Erosion

The process by which natural forces, such as water or wind, remove soil, rock, or dissolved material from one location and transport it to another.

Strip Cropping

An agricultural practice where crops are grown in alternating strips to reduce soil erosion and encourage biodiversity.

Contour Farming

An agricultural technique where farming practices like plowing are done parallel to the contours of the land, aimed at reducing soil erosion.