Your boss at GM complains that a premium of $0.25 is too high. You therefore devise...

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Your boss at GM complains that a premium of $0.25 is too high. You therefore devise a strategy to reduce the premium by simultaneously buying at-the-money call options and selling out-of-the-money put options. This is called an inverse collar or reverse collar Specifically, you have a short cash position at $3.50 (the current cash price), and you hedge by buying a call option with a strike price of $3.50 and a premium of $0.25, and selling a put option with a strike price of $3.00 and a premium of $0.075. Calculate your profits at each potential cash (-futures) price. (2 points) Price (S) Profit on short put Profit on short cash Profit on long call I 2.50 2.75 3.00 3.25 3.50 3.60 3.70 3.80 3.90 4.00 4.25 4.50 Now graph your combined (1.e. net) profits. (1 point) Combined profit Your boss at GM complains that a premium of $0.25 is too high. You therefore devise a strategy to reduce the premium by simultaneously buying at-the-money call options and selling out-of-the-money put options. This is called an inverse collar or reverse collar Specifically, you have a short cash position at $3.50 (the current cash price), and you hedge by buying a call option with a strike price of $3.50 and a premium of $0.25, and selling a put option with a strike price of $3.00 and a premium of $0.075. Calculate your profits at each potential cash (-futures) price. (2 points) Price (S) Profit on short put Profit on short cash Profit on long call I 2.50 2.75 3.00 3.25 3.50 3.60 3.70 3.80 3.90 4.00 4.25 4.50 Now graph your combined (1.e. net) profits. (1 point) Combined profit

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To calculate the profits at each potential cash price we need to consider the payoff from the short ... View the full answer