Explain how one could create protective put on AAPL Stock under current market c
ID: 2724894 • Letter: E
Question
Explain how one could create protective put on AAPL Stock under current market conditions. Be sure to check the option chains for Apple put options. Include the possible scenarios at expiration. use June 17, 2016 Options.
Option Chain for Apple Inc. (AAPL) Last Chg Bid Ask Vol Open Int Root Strike Puts Last Chg Bid Ask Vol Open Int 579 94 Jun 10, 2016 2.90 -0.15 2.56 2.64 79 1252 Calls Jun 10, 2016 2.36 -0.02 2.29 2.36 40 Jun 10, 2016 1.91-0.09 2.03 2.11 80 Jun 10, 2016 1.78 0.04 1.81 1.87 25 Jun 10, 2016 1.62 0.12 1.59 1.63 380 Jun 10, 2016 1.49 -0.06 1.40 1.46 9 Jun 10, 2016 1.25 -0.09 1.23 1.28 52 Jun 10, 2016 1.09 0.01 1.07 1.12 31 Jun 10, 2016 0.95 0.06 0.93 0.98 109 Jun 10, 2016 0.80 -0.22 0.81 0.84 20 Jun 10, 2016 0.70 -0.03 0.68 0.73 102 Jun 10, 2016 0.74 Jun 10, 2016 0.52 -0.03 0.50 0.55 19 Jun 10, 2016 0.47 0.02 0.42 0.47 3 Jun 10, 2016 0.36 -0.04 0.38 0.40 160 Jun 10, 2016 0.28 -0.03 0.27 0.30 72 Jun 10, 2016 0.20 -0.03 0.20 0.21 94 Jun 17, 2016 8.97 0.48 8.85 9.00 249 Jun 17, 2016 6.77 0.42 6.75 6.80 132 Jun 17, 2016 4.82 0.32 4.80 4.90 1338 Jun 17, 2016 3.23 0.27 3.15 3.25 1993 Jun 17, 2016 1.96 0.12 1.95 1.97 7154 27223 AAPL 95 Jun 17, 2016 3.44-0.51 3.40 3.50 1072 29584 Jun 17, 2016 1.09 0.06 1.08 1.10 3476 14621 AAPL 97.5 Jun 17, 2016 5.19-0.31 5.05 5.15 517 12581 Jun 17, 2016 0.57 557 AAPL 93.5 Jun 10, 2016 2.35 -0.26 2.31 2.38 46 341 AAPL 818 AAPL 94.5 Jun 10, 2016 2.98 -0.53 2.80 2.92 14 883 AAPL 95 Jun 10, 2016 3.20 -0.28 3.05 3.25 20 244 AAPL 95.5 Jun 10, 2016 3.60 -0.40 3.35 3.55 24 525 AAPL 96 Jun 10, 2016 3.80 -0.34 3.70 3.85 27 4.00 4.20 0 4.40 4.55 8 318 AAPL 97.5 Jun 10, 2016 4.85 -0.05 4.75 4.95 32 1117 AAPL 98 Jun 10, 2016 5.25 -0.30 5.15 5.302 195 AAPL 98.5 Jun 10, 2016 6.60 -0.30 5.50 5.75 1 4395 AAPL 99 Jun 10, 2016 6.50 0.20 5.95 6.15 17 6.35 6.60 0 8507 AAPL 100 Jun 10, 2016 7.45 0.16 6.80 7.00 6 7.70 7.90 0 567 AAPL 102 Jun 10, 2016 9.95 1.35 8.60 8.85 7 409 205 215 170 85 530 51 78 13 204 56 69 2129 AAPL 85 Jun 17, 2016 0.45 -0.13 0.44 0.46 1552 22776 1702 AAPL 87.5 Jun 17, 2016 0.78 -0.20 0.77 0.79 1194 9822 6590 AAPL 90 Jun 17, 2016 1.34 -0.28 1.34 1.35 7699 39519 5488 AAPL 92.5 Jun 17, 2016 2.20 -0.37 2.20 2.22 1567 14721 2090 AAPL 96.5 Jun 10, 2016 4.42 1171 AAPL 97 Jun 10, 2016 4.55 0.58 0.63 0 437 AAPL 99.5 Jun 10, 2016 6.73 329 AAPL 101 Jun 10, 2016 7.80 0.57 0.58 3043 48222 AAPL 100 Jun 17, 2016 7.05-0.46 7.00 7.15 411 36571Explanation / Answer
protective put is used when we owned a stock and buy a put option to protect against downside risk
for example if AAPL is purchased at market pricr of 90 and puchase put option with same strike price at 1.35
now his Payoff table will be as follows
Actual price at expiration
Profit or( loss) on stock
Premium
Value of option
Net profit or( loss)
87
(3)
(1.34)
3
(1.34)
88
(2)
(1.34)
2
.66
89
(1)
(1.34)
1
(.34)
90
0
(1.34)
0
(1.34)
91
1
(1.34)
0
(.34)
92
2
(1.34)
0
.66
It means his maximum loss in this strategy is 1.34 and start earning profit after (90+1.34) 91.34
Actual price at expiration
Profit or( loss) on stock
Premium
Value of option
Net profit or( loss)
87
(3)
(1.34)
3
(1.34)
88
(2)
(1.34)
2
.66
89
(1)
(1.34)
1
(.34)
90
0
(1.34)
0
(1.34)
91
1
(1.34)
0
(.34)
92
2
(1.34)
0
.66
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