Rebecca Bradley is a portfolio manager in a small asset management firm focusing on high-net-worth clients. In mid-April she is preparing for an upcoming meeting with Dr. Mary Parker, a client whose daughter is about to get married. Dr. Parker and her husband have just decided to pay for their daughter’s honeymoon and need to raise $20,000 relatively quickly. The client’s portfolio is 100% invested in equities and, by policy, is aggressive. At the moment the Parkers are “asset rich and cash poor.” They have largely depleted their cash reserves with the wedding expenses. The recently revised investment policy statement permits all option activity. Over the next six months, Bradley’s firm has a flat to slightly bearish market outlook. Dr. Parker’s account contains 5,000 shares of Apple stock, a recent addition to the portfolio. Bradley is considering the following 30-day exchange-listed options, which expire in May. Apple Current Stock Price: $99.72 Apple Options:

Call ($) Exercise Price ($)

4.90 97

3.25 100

2.02 103

What strategy should Bradley recommend to Dr. Parker? What are the potential risks associated with this strategy? Assume Apple options trade on an organized exchange with a standard contract size of 100 options.

Answer rating: 100% (QA)

Solution What strategy should Bradley recommend to Dr parker Answer Here since Bradley has ma... View the full answer