Net profit or loss at the end of the three-week period

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An investment manager buys shares of stock ABC at a price of $95. Immediately, she also buys a 1-month American put option with a strike price of $95 and a premium of $3. Three weeks later, the stock is trading at a price of $90. Critique and inform the manager with respect to these positions, including answers to the following questions:

A. What was the goal of entering these positions (including the name of the strategy)?

B. What is the net profit or loss at the end of the three-week period ?

C. Why would the manager choose a strike price of $95 for the put option? What would have been the effect of choosing a lower strike price say $85)?

Reference no: EM132009237

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