This question may help you many years down the road! Time flies!! Imagine you have become 65 years old and you plan to retire next year. You expect to have $1,000,000 in your 401K. You buy 50 contracts of put options on SPY at a strike price of $2,200 per share. You paid a total premium of $25,000 for all the put options you bought. When you exercise your put option, the price of SPY per share is down by 20% and the total value of your portfolio (401k) declines by 15%.
a. Explain briefly why this strategy may make sense.
b. What is your total loss without this strategy? $.......................
c. What is your total net loss or total net profit (your portfolio and options all together) with this strategy?