What is the per-share gain-loss in your stock investment

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Reference no: EM132036526

Assume that you have a LONG position in 6,742 shares of stock. You purchased the stock at a price of S_t = $17.50 per share. In order to protect the value of your stock investment, you also bought 300 put options with the following characteristics:

underlying asset NSU Company stock (100 shares)

exercise price X = $17.50 per share

expiration 6 months

premium P_t = $1.25 per share.

Assume, at the time of the closing trade, the stock and put prices are:

St+n = $15.75 per share P_t+n = $1.22 per share.

Answer the following:

1. What is the per-share GAIN/LOSS in your stock investment? What is the total GAIN/LOSS for all 6,742 shares?

2. Assume that you offset your put options. What is the per-share GAIN/LOSS for the put options? What is the total GAIN/LOSS for all 300 put options?

3. Based on your answers to #1 and #2 above, did the LONG position in put options help to protect your stock investment? How?

Reference no: EM132036526

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