Business, 23.02.2021 01:00 shikiaanthony

Anticipating lower share prices, investor A SELLS one futures contract on Amazon Inc. with expiration date of September 2006 and a price of $35 per share. In September 2006, the investor will deliver 100 shares of Amazon and get $35 per share. The investor does not receive anything on the futures contract until she delivers the shares. To protect against a rise in Amazon share prices, investor A also BUYS one European CALL option on 100 shares of Amazon with an exercise price of $35 per share, and expiration date of September 2006. The current price of the option is $3 per share. Anticipating lower share prices, investor B BUYS one European PUT option on 100 shares of Amazon Inc. with an exercise price of $35 per share, and expiration of September 2006. The current price of the option is $3 per share. For simplicity assume that the interest rate is zero and that the investors do not currently own any shares of Amazon. Calculate the initial cash flow, the break-even stock price at expiration and the maximum profits and losses for each investor. Which strategy is better

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Anticipating lower share prices, investor A SELLS one futures contract on Amazon Inc. with expiratio...