Construct profit diagrams or profit tables on expiration to show what position in IBM puts,calls and/or underlying stock best expresses the investor's objectives described below. Assume IBMcurrently sells for $150 so that profit diagrams/ tables between $100 and $200 (in $10 increments)are appropriate. Also assume that "at the money" puts and calls cost $15 each. (As usual, the profitcalculations ignore dividends and interest.)

(a)AninvestorwantsupsidepotentialifIBMincreasesbutwants(net)lossesnogreaterthan $15 if prices decline.

(b)An investor wants to capture profits if IBM declines in price but wants a guaranteed limited loss if prices increase.

(c)An investor wants to capture profits if IBM declines in price and is ready to accept unlimited losses if prices increase. Further, the investor wants to break even if the stock price does not change between now and the maturity of the options.

(d)An investor wants to profit if IBM's upcoming earnings announcement is eitherunexpectedly good or disappointingly bad.