Market Rises by 0.5%

Stock

$996,975 x 0.005 x 1.08 =$5,384 gain

Calls

56 x 100 x ($3.40 - $3.90) =$2,800 loss

Net Effect =$2,584 gain

Market Falls by 0.5%

Stock

$996,975 x (-0.005) x 1.08 =$5,384 loss

Calls

56 x 100 x ($3.40 - $2.53) =$4,872 loss

Net Effect = $512 loss

Consider the information in the above table.

(a) If the overall market advances by 10% in the next 30 days, what is a likely aggregate portfolio value in each instance just before option expiration ? (2.5 marks)

(b) If the overall market falls by 10% in the next 30 days, what is a likely aggregate portfolio value in each instance just before option expiration ? (2.5 marks)