Assume you sell 100 shares of Alston Corporation short at $43. You also buy a 40 call

Question:

Assume you sell 100 shares of Alston Corporation short at $43. You also buy a 40 call option for $4.80 to protect against the stock price going up.

a. If the stock ends up at $60, what will be your overall gain or loss?

b. If the stock ends up at $20, what will be your overall gain or loss?

c. What is the most you can lose under this short sale–call option plan?

d. If you have an unprotected short sale position (no call option), what is the most you could lose?

e. Under the conditions described in part d, if you had a limit order to buy the stock and close out the position at $54, what is the most you could lose?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...