Analysis showing the net profit

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Dell stock is selling for $17.46 per share. You are an institutional investor holding a significant amount of the stock. You are forecasting a 20% decline in the value of this stock during the next few weeks but are constrained from selling the stock until May 21.

You can construct a covered call position using the May call with an exercise price of $18 and a premium of $0.35. Alternatively, you can construct a protective put position using the May put with an exercise price of $18 and a premium of $1.13. Both options expire on May 21.

Provide analysis showing the net profit from (i) the covered call and (ii) the protective put on the expiration date assuming the stock price has fallen 20%. Which strategy is more effective at retaining the value of your position?

Reference no: EM13785662

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