3. Company ABC offers project-related services in engineering, technology, construction, fabrication, environmental industry with diverse customer base worldwide. In the past three weeks, the company has bounced from its lowest point in the past three years ($11.40) to $20 this week. At the same time, the volatility of this stock has been pumped-up. You are in favor of the company since the company is well positioned on its balance sheet and on the environmental industry new construction opportunities.

What strategy will provide you the downside protection if you want to long the stock? What is the benefit of this strategy other than the downside protection? What is the result of this strategy at the expiration date? (You can assume your call or put premium.)


4. You have started the short position on the S&P index October last year. Now the index has gone down 35% and you had nice unrealized profit. Corporate earnings and macro-economics data still keeping dragging the market down and you would like to hold the position a little bit longer, but you also hate that nervous feeling from those quick and short rallies in the past three months. You are even more nervous now since the index has been down to the lowest level since 1996. How do you hedge your short position and take advantage of the currently volatile market? Please explain?