Question

"a customer owns 1,000 shares of xyzz stock, purchased at $40 per share. the stock is now at $45, and the customer has become neutral on the stock, but believes that the stock still has good long term growth potential the client asks her representative for a "conservative recommendation" that will give her a positive portfolio return. the client should be told to:"

Answer 1

Answer:

Sell 10 XYZZ 45 call contracts

Explanation:

Since it is mentioned that the customer purchased for $40 and sale at $45 also he is neutral and thinks of a good investment. Therefore the stock should not be sold

Now if the customer sold the calls as opposed to the position of the stock than it would generate an additional premium income. This is we called conservative income strategy

Also if the stock increased, the expiration of put is done and the customer also owns the stock but if the stock decline, the short put is exercised i.e reflects that the customer should buy the stock

And in the recession market, the client lose doubles in a fast manner

Therefore the above is the answer