Investments.

May 31st, 2016
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Investments. Week 10-2. 12.) Risk of a short position is to the upside. You could therefore buy the $30 call for $3. If the stock goes higher than 30, the loss on the short stock will be offset by the value of the call at expiration. Your max loss would be $1 on the short stock and $3 on the call purchase for a total of a $4 loss if the stock closes at 30 on expiration day. Max potential profit would be if the stock went to zero: $29 - $3 = $26 profit. To generate a profit, you need to make at least $3 on the short position to offset the call purchase. This would occur at a stock price of $26 or lower at expiration.

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Investments1JKInstructor Charles BensonInvestmentsDecember 20, 2015InvestmentsInvestments212.) Risk of a short position is to the upside. You could therefore buy the $30 call for $3.If the stock goes higher than 30, the loss on the short stock will be offset by the value of the callat expiration. Your max loss would be $1 on the short stock and $3 on the call purchase for atotal of a $4 loss if the stock closes at 30 on expiration day.Max potential profit would be if the stock went to zero: $29 - $3 = $26 profit.To generate a profit, you need to make at least $3 on the short position to offset the callpurchase. This would occur at a stock price of $26 or lower at expiration.13.)a.A bear spread designed to profit from a decline in the price of the stock. The investorpurchases the option with the $20 strike price for $2 and sells the other option for $5. Theposition generates a cash inflow ($3). The profit-loss profile is as follows:PriceIntrinsic value:Profit:of theCall atCallBuying thestock$20at $15 $20 callSelling theTotal$15 callprofitfor $2for $5$14$0$0($2)$5$32005(2)0(2)255103(5)(2)The maximum possible profit is $3, and the maximum possible loss is $2.b.If the investor had sold the stock short (another position designed to take advantage of aprice decline), the maximum possible profit is $18, but the maximum possible loss isunlimited. The bear spread has less potential ab

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