Question

On May 3, 2016, an investor owns 100 Google shares. As indicated in Table 1.3, the share price is about $$\$ 696$$ and a December put option with a strike price of $$\$ 660$$ costs $$\$ 38.10$$. The investor is comparing two alternatives to limit downside risk. The first involves buying one December put option contract with a strike price of $$\$ 660$$. The second involves instructing a broker to sell the 100 shares as soon as Google's price reaches $$\$ 660$$. Discuss the advantages and disadvantages of the two strategies.

   On May 3, 2016, an investor owns 100 Google shares. As indicated in Table 1.3, the share price is about $$\$ 696$$ and a December put option with a strike price of $$\$ 660$$ costs $$\$ 38.10$$. The investor is comparing two alternatives to limit downside risk. The first involves buying one December put option contract with a strike price of $$\$ 660$$. The second involves instructing a broker to sell the 100 shares as soon as Google's price reaches $$\$ 660$$. Discuss the advantages and disadvantages of the two strategies.
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 1, Problem 37 ↓

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The investor owns 100 Google shares, each priced at $696. The total value of the shares is 100 * $696 = $69,600.  Show more…

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On May 3, 2016, an investor owns 100 Google shares. As indicated in Table 1.3, the share price is about $$\$ 696$$ and a December put option with a strike price of $$\$ 660$$ costs $$\$ 38.10$$. The investor is comparing two alternatives to limit downside risk. The first involves buying one December put option contract with a strike price of $$\$ 660$$. The second involves instructing a broker to sell the 100 shares as soon as Google's price reaches $$\$ 660$$. Discuss the advantages and disadvantages of the two strategies.
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