Call or Put?

Today, Hewlett-Packard鈥檚 common stock price (HPQ) is $50. You want to invest in the stock, but you also want to protect your stock investment using a put option with exercise price of $45 and expiration date of May, 2008. Currently put options with $45 strike, which expire in May, 2008 are priced at $2. So, you decided to buy the stock and purchase a put option on the stock (therefore, you are investing $52 today).
a) What is the maximum amount you can lose from the portfolio (stock and the put option)?
b) What stock price makes you breakeven?
c) What would the rate of return of your portfolio be if the stock price was $40, $45, $50, $55, or $60 at the expiration date?
d) Depending on your previous answers, do you think it is worth buying the put option together with the H-P stock or just invest in the H-P stock?

Well, I have no idea... I think that HP is not really healthy nowadays.

But do you know that Yahoo stocks price got 50% higher in less than 2 years time ?

I should have bought some Yahoo stock and shares. It's too late now...

For argument sake I will not include possible commissions.

A. $7 ($52 invested minimum selling at $45) This is only until Option Expires

B. $52 is your break even (its what you invested)

C. -13.46% -13.46% -3.85% +5.77% +15.38%



I prefer buying the stock without the option and placing a sell stop it is not the exact same thing but wil have a similar affect.

a) the premium u paid
b)$43
c)7.5% for $40, others=loss, means, do not exercise the put option if the stock price goes above $43.

sorry if the answers r wrong. ive left this subject long time ago.
i just try to recall what ive learnt. but i doubt they are correct.haha.

Here's my thoughts...HPQ is and has been for a long time above it's 200 day moving average. It's been in an up trend forever and doesn't have difficulty breaking through resistance when it drops through support. The moving average in HP's case is support. An up trending MA.

For a protective PUT I would not go so far out in time as you have put forth but would rather do PUT's 30-40 days out instead. My tools show that the MAY 08 45 PUT is currently priced at $1.55 it's allready lost money/value making the break even price $43.55 There isn't a lot of open interest on that PUT either some (1,866) but not a lot. It has at the moment a 25.73% chance of being worth something at expiration. Currently there is more open interest in the MAY $55 and $60 CALL's. If your willing to spend a buck and a half on a MAY PUT for insurance why not buy the JAN 08 52.5 PUT selling at 1.75 (now) and is in the money?

Just my thoughts and is not a recommendation to buy, sell or hold on any positon.