1.A $5 million stock portfolio has a beta of 1.10 at a time when the OEX index stands at 440.00. You write 10 JUN OEX 450 calls at a premium of $5 each. At option expira¬tion in June, the OEX index is 452.00. What is your best estimate of the total equity in the portfolio after option expiration?
2.In Problem 1, suppose instead the OEX index was at 458.50 at option expiration in June. What is your best estimate of the total portfolio equity after option expiration?
3. Suppose you have to explain to your boss why writing covered calls and writing puts are generally equivalent strategies. Select an example from the Wall Street Journal and prepare two profit/loss diagrams, properly labeled, showing the similarities in these two strategies.
Also explain in no more than two sentences why your firm, a non-profit corporation, does not need to be concerned about the fact that puts must be written in a margin account.
4. One of the primary motivations for writing stock options is to generate income. Suppose you own a portfolio of stock and are generally bullish about the stock market for the next six months. What are the things to consider as you decide whether to write calls or to write puts?
5.Comment on the following statement: “It does not make sense to buy 200 shares of stock, write one covered call, and buy one protective put. This is equivalent to just owning 100 shares of stock.”
6.Put overwriting is the practice of writing put options against stock you own rather than the more common practice of writing covered calls. Explain the things that someone should be aware of before doing this, including the best and worst things that could happen.