Problem 4: Options Short Answers (5 points) (a) Imagine AAPL stock closed at $520 on November 15th. At the same time, the following options were traded for AAPL stock: Call or put Expiration date Strike price Option premium Call December 21st 505 $26.50 Put December 21st 505 $13.30 Assuming AAPL's share price is $560 on December 21st, compute the payoff, profit, and return for a straddle (a portfolio of one call and one put) with strike price 505 purchased at market close on November 15th As a reminder, the payoff from an options portfolio is the total value of the underly- ing options at expiration (ignoring the premiums pald), the profit is the payoff minus the premiums paid, and the return equals the profit divided by the initial premium. Position Payoff Profit Return Long 1 straddle (b) Say you were short Google stock in your portfolio but wanted to limit your losses to 25% of the amount your shorted. What option trade should you make (circle one of buy or sell, and one of put or call)? Buy / Sell Google put / call options. (e) Say you worked at Company A and found that Company B has stock returns most strongly correlated with Company A's of all publicly traded firms. If you wanted to hedge the risk of being fired from Company A because the company peforms poorly, what option trade should you make in Company B's options? Buy / Sell Company B put / call options