A put and a call have the following terms:
Call: strike price $ 30
term three months
price $ 3
Put: strike price $ 30
term three months
price $ 4
The price of the stock is currently $ 29. You sell the stock short. Illustrate how to use the call or the put to reduce your risk exposure.
a) What is the maximum possible profit on the position?
b) What is the maximum possible loss on the position?
c) What range of stock prices generates a profit?
d) What advantage does this position offer?