Your strategy P suggests a protective put position: Buy shares in a market-index stock fund and put options on those shares with 30 days until expiration and exercise price of $920. The stock index is currently at $1,080. Alternatively, your strategy C suggests you instead buy a 30-day call option on the index fund with exercise price $1, 000 and buy 30-day T-bills with face value $1,000. Suppose the market price for the call options is $150 and the market price for the put options is $20. The 30-day T-bills is quoted at $990, with a continuously compound rate of return of 8.26%. 

What strategy is riskier? Discuss your results based on the profit  of these two strategies.

Answer rating: 100% (QA)

ANSWER To determine which strategy is riskier we need to analyze the potential profits and losses of each strategy under different scenarios For the protective put strategy the investor buys shares in ... View the full answer