Announcement and options trading in ibm continues

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Construct payoff and profit tables on expiration to show what position in IBM puts, calls and/or underlying stock best expresses the investor's objectives described below. Assume IBM currently sells for $150 so that profit tables between $100 and $200 in $10 increments are appropriate. Also assume that "at the money" puts and calls cost $15 each. (As always, the profit tables ignore the time value of money.)

(a) An investor wants upside potential if IBM increases but wants losses no greater than $15 if prices decline.

(b) An investor wants to capture profits if IBM declines in price but wants a guaranteed limited loss if prices increase.

(c) An investor wants to capture profits if IBM declines in price and is ready to accept unlimited losses if prices increase. [there are at least 2 answers to this]

(d) An investor wants to profit if IBM's upcoming earnings announcement is either unexpectedly good or disappointingly bad.

(e) Suppose the NYSE suspended trading in IBM pending a news announcement. You want to sell IBM before the announcement and options trading in IBM continues uninterrupted on the CBOE. How do you do it?

Reference no: EM132185111

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