Options 2. Construct profit diagrams or profit tables on expiration to show what position in AMZN puts, calls and/or underlying stock best expresses the investor's objectives described below. Assume AMZN currently sells for $150 so that profit diagrams/ tables between $100 and $200 (in $10 increments) are appropriate. Also assume that "at the money" puts and calls cost $15 each. (As usual, the profit calculations ignore dividends and interest.) 1 (a) An investor wants upside potential if AMZN increases but wants (net) losses no greater than $15 if prices decline. (b) An investor wants to capture profits if AMZN declines in price but wants a guaranteed limited loss if prices increase. (c) An investor wants to capture profits if AMZN declines in price and is ready to accept unlimited losses if prices increase. Further, the investor wants to break even if the stock price does not change between now and the maturity of the options. (d) An investor wants to profit if AMZN's upcoming earnings announcement is either un- expectedly good or disappointingly bad.
Options 2. Construct profit diagrams or profit tables on expiration to show what position in AMZN puts, calls and/or underlying stock best expresses the investor's objectives described below. Assume AMZN currently sells for $150 so that profit diagrams/ tables between $100 and $200 (in $10 increments) are appropriate. Also assume that "at the money" puts and calls cost $15 each. (As usual, the profit calculations ignore dividends and interest.) 1 (a) An investor wants upside potential if AMZN increases but wants (net) losses no greater than $15 if prices decline. (b) An investor wants to capture profits if AMZN declines in price but wants a guaranteed limited loss if prices increase. (c) An investor wants to capture profits if AMZN declines in price and is ready to accept unlimited losses if prices increase. Further, the investor wants to break even if the stock price does not change between now and the maturity of the options. (d) An investor wants to profit if AMZN's upcoming earnings announcement is either un- expectedly good or disappointingly bad.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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help me answer every part of this question
Transcribed Image Text:Options
2. Construct profit diagrams or profit tables on expiration to show what position in AMZN
puts, calls and/or underlying stock best expresses the investor's objectives described below.
Assume AMZN currently sells for $150 so that profit diagrams/ tables between $100 and
$200 (in $10 increments) are appropriate. Also assume that "at the money" puts and calls
cost $15 each. (As usual, the profit calculations ignore dividends and interest.)
1
(a) An investor wants upside potential if AMZN increases but wants (net) losses no greater
than $15 if prices decline.
(b) An investor wants to capture profits if AMZN declines in price but wants a guaranteed
limited loss if prices increase.
(c) An investor wants to capture profits if AMZN declines in price and is ready to accept
unlimited losses if prices increase. Further, the investor wants to break even if the stock
price does not change between now and the maturity of the options.
(d) An investor wants to profit if AMZN's upcoming earnings announcement is either un-
expectedly good or disappointingly bad.
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