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We have 20,000 shares of IBM, which we bought for $50 per share. We buy protective puts against them at a strike price of $62 for which we have to pay a $2 premium. Explicate on the results and the ROR we make in the following two cases. First, assume that the market price decreases to $40, and second, assume it rises to $78. Discuss both the buyer and the seller of these puts.

Explain the 2 cases of buyer and seller of a put option in case that the data are as above and that we, the buyer of the put, do not own the stock (so, we have a naked option.).

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91557643

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