Ryan anticipated a price decline in the price of Target in the next three years. He...
Ryan anticipated a price decline in the price of Target in the next three years. He has just shorted 100 shares of target common stock at $50 per share. To protect against losses, Ryan considers the following two investment strategies.
a. Strategy A is to write a TGT May 55 put with a premium equal to $3.
b. Strategy B is to buy a TGT May 55 call with a premium equal to $3
Evaluate each of the above two strategies under the three scenarios (1) future stock price is $45 (2) future stock price is $55 (3) future stock price is $60.
10. What would be Ryan’s profit from strategy A under the three scenarios?
- -$3, $3, $10
- -$2, -$2, -$7
- $3, -$2, -$5
- $2; -$8, -$8
11. What would be Ryan’s profit from strategy B under the three scenarios?
- -$3, $3, $10
- -$2, -$2, -$7
- $3, -$2, -$5
- $2; -$8, -$8
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