You just bought 500 shares of Ford for $11 a share. To make sure that the value of your shares,is protected against price decline you simultaneously enter an option position in Ford options. Assume that the excercise price is $11 a share for both put and call; call price is $0.75 a share and put price is $0.65 a share. Assume that options expire in 3 months and are exercised on expiration date.
(a) What is your decision? Circle one position. Note that you can enter only one position. Also you must indicate the number of contracts
Positions Number of contracts
-Buy Call
-Sell Call
-Buy Put
-Sell Put
Given your choice in part a answer parts b, c and d about the combined position in option and stock.
(b) What is your total profit per share if the stock price increases to $15 a share at expiration?
(c) What is your total profit per share if the stock price declines to $0 at expiration?
(d) Create one diagram below that shows the per share profit profiles for the option and stock separately and also their combined profit per share profile at expiration. (label each axis, profit profile and all breakeven points)