Mr. Jones wants to construct a protective collar (long stock, long put, short call) on...
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Finance
Mr. Jones wants to construct a protective collar (long stock, long put, short call) on the XYZ Corporation stock. He owns 100 shares of the stock. The XYZ stock currently trades for $60 per share. Mr. Smith buys 100 put options on this stock with the strike price of $50 and sells 100 call options with the strike price of $70. Both options expire in 3 months.
- Construct a payoff table for this strategy
- Show on the graph how the payoff of this strategy depends on the price of the XYZ stock
- In your opinion, what is the purpose of this strategy?
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