1. Draw the payout diagrams (at maturity) for the following combinations of ABC stock and its options. Assume all put and call options on ABC have the same strike price K = $100 and maturity T.
(a) Purchased (long) one share of ABC stock, sold (short) one call option.
(b) Short two shares of ABC stock, long three put options.
(c) Long one risk-free zero-coupon bond with a par value of $100 , short one call option.
(d) Long one share of ABC stock, short two call options, long one put option.
2. On November 12, Drowner filed for relief under the provisions of Chapter 7 of the Bankruptcy Code. Prior to filing, Drowner advised his attorney that he had engaged in the following activities and transactions. On June 1, he paid the equivalent of three mortgage payments on his home to Fidelity Funding. On August 15, his prior landlord seized $4,100 from his bank account to satisfy a three year old judgment for rent. On November 1, he (Drowner) paid off his car note with a check for $4,500. Sun Finance held the note and the car title, with its lien noted thereon. The mortgage debt of approximately $220,000 was properly recorded and the house had a fair market value of $245,000. Drowner’s car is worth $11,000. Drowner’s attorney should advise Drowner that:
A) The money seized by his former landlord constitutes a preferential transfer.
B) The money paid on his car note constitutes a preferential transfer.
C) The money paid to his mortgage company constitutes a preferential transfer.
D) All of the above payments and seizures were preferential transfers.