3) Joe has purchased a stock index fund currently selling at $1200 a share. To...
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3) Joe has purchased a stock index fund currently selling at $1200 a share. To protect against losses, Joe also purchased an at the money European put option on the fund for $60.00, with exercise price $1200, and three months time to expiration. Sally, joes financial advisor, points out that Joe is spending a lot of money on the put option. She notes that three month puts with strike prices of $1170 cost only $45.00, and suggests that Joe used the cheaper put. a) Analyze Joe's and Sally's strategies by drawing the profit diagrams for the stock plus put positions for various values of the stock fund in three months. b) When does Sally strategy do better? When does it do worse? c) Which strategy entails greater systematic risk
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