Hadley Elbridge, managing director for Humber Wealth Managers, LLC, is concerned about the risk level of a clienfs equity portfolio. The client, Pat Cassidy, has 60 percent of this portfolio invested in two equity positions: Hop Industries and Sure Securities. Cassidy refuses to sell his shares in either company, but has agreed to use option strategies to manage tfiese concentrated equity positions. Elbridge recommends either a collar strategy or a protective put strategy on the Hop position, and a covered call strategy on the Sure position. The options available to construct the positions are shown in Exhibit 1.
Exhibit 1. Equity Positions and Options A ailahle

Cassidy makes the following comments:
Comment #1 "The Hop protective put position provides a maximum per share loss of $2.00 and a breakeven underlying price at expiration of $27.00.^
Comment #2 "The Sure covered call position provides a maximum per share gain of $2.20 and a breakeven underlying price at expiration of $32.80.w
Comment #3 “The general shape of a profit-and-loss graph for the protective put closely resembles the general shape of the graph for another common option position.”
Elbridge also investigates whether a privately negotiated equity swap could be used to reduce the risk of the Hop and Sure holdings. A swap dealer offers Elbridge the following:
■ The dealer will receive the return on 250,000 shares of Hop and 200,000 shares of Sure from Cassidy.
■ The dealer will pay Cassidy the return on an equivalent dollar amount on the Russell 3000 Index.
The dealer demonstrates the quarterly cash flows of this transaction under the assumptions that Hop is up 2 percent, Sure is up 4 percent, and the Russell 3000 is up 5 percent for the quarter.
The remaining 40 percent of Cassidy’s equity portfolio is invested in a diversified portfolio of equities valued at $13,350,000. Elbridge believes this portfolio is too risky, so he recommends lowering the beta of this portfolio from its current level of 1.20 to a target beta of 0.80. To accomplish this，he will use a two-month futures contract with a price (including multiplier) of $275,000 and a beta of 0.97.