Chapter 15, Problem 26C

Summary Introduction

(a)

To Determine:

Joe's and Sally's strategies by drawing the profit diagrams for the stock-plus-put positions for various values of the stock fund in 3months.

Introduction:

A put is an options contract that gives the owner the right to sell the underlying asset at the specified strike price at any point up until expiration. A fairly basic position is the covered put, which is very similar strategically to a covered call.

Summary Introduction

(b)

To Determine:

When does sally's strategy do better and when does it do worse.

Introduction:

A put is an options contract that gives the owner the right to sell the underlying asset at the specified strike price at any point up until expiration. A fairly basic position is the covered put, which is very similar strategically to a covered call.

Summary Introduction

(c)

To Determine:

The strategy that entails greater systematic risk

Introduction:

Systematic risk, also known as "market risk" or "un-diversifiable risk", is the uncertainty inherent to the entire market or entire market segment. Also referred to as volatility, systematic risk consists of the day-to-day fluctuations in a stock's price