Derivative Q 3&4

  1. schweser notes book5, P215, after the formula S=c-p+X/(1+RFR)^T, the professor¡¦s note at bottom, it says, the sign on the individual securities will indicate whether you need a long position(+sign) or a short position (- sign) in the respective securities. ƒÞ we learned small c and p are refer to European call and put option price, and capital to American ones. In above formula, small c and p seems for both style options. And where is the sign on individual securities from professor¡¦s note refer to ? 4. schweser notes book5, P242, 3rd last paragraph of covered call, 4th line . it says, to add some insurance that the stock won¡¦t get called away, the call writer can write out of the money calls. – I don¡¦t understand why writing out of money calling can add insurance that stock won¡¦t be called. It just insurance some profit equal to call premium when stock price goes up.