Question: question 1 how can i explain to my client that...
1. How can i explain to my client that how option contract can be used as protection against a fall in stock price.
2. SPDR S&P 500 EFT trust option (SPY) is designed to track the value of S&P 500. Suppose a one-month call option with a strike price of $300 costs $11.5; a one-month put option with a strike price of $310 costs $7.5, your client bought two call options and two put option, what is the breakeven stock price below which that the client makes a profit?
3. Costco (NASDAQ: COST) proving its strength as a consumer staples stalwart and has seen its share price strongly outperform the S&P 500 over the last month. Suppose you have purchased a Costco stock, which type of option should be chosen for hedging? Based on the option you selected, choose the appropriate strike price to calculate the option price, assuming the Costco is on a non-dividend-paying stock and the current stock price and strike price are given in the question, the risk-free interest rate is 3% per annum, the volatility is 30% per annum, and the time to maturity is four months.