Given a call warrant, with a strike price $168, the conversion ratio is 30, price of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Given a call warrant, with a strike price $168, the conversion ratio is 30, price of the call warrant is $0.31 per warrant today, delta of the call warrant is 50%. Given a put warrant, with a strike price $168, the conversion ratio is 30, price of the put warrant is $0.35 per warrant today, delta of the put warrant is 35%. Suppose the spot price of the underlying stock be $170. (a) Suppose you buy 90000 units of the put warrant today, and if the price of the underlying stock becomes $179 tomorrow, how much is your profit/loss? (6 marks) (b) Suppose you buy 7000 units of the call warrant today, and also buy 7000 units of the put warrant today, draw a diagram to indicate the profit/loss of your portfolio at expiry. Under what circumstances, investors should adopt this investment strategy? (8 marks) (c) Suppose you buy 200 shares of the stock at the spot price, and also buy 6000 units of the put warrant today, draw a diagram to indicate the profit/loss of your portfolio at expiry. Discuss the main advantages of this investment strategy. (7 marks) Given a call warrant, with a strike price $168, the conversion ratio is 30, price of the call warrant is $0.31 per warrant today, delta of the call warrant is 50%. Given a put warrant, with a strike price $168, the conversion ratio is 30, price of the put warrant is $0.35 per warrant today, delta of the put warrant is 35%. Suppose the spot price of the underlying stock be $170. (a) Suppose you buy 90000 units of the put warrant today, and if the price of the underlying stock becomes $179 tomorrow, how much is your profit/loss? (6 marks) (b) Suppose you buy 7000 units of the call warrant today, and also buy 7000 units of the put warrant today, draw a diagram to indicate the profit/loss of your portfolio at expiry. Under what circumstances, investors should adopt this investment strategy? (8 marks) (c) Suppose you buy 200 shares of the stock at the spot price, and also buy 6000 units of the put warrant today, draw a diagram to indicate the profit/loss of your portfolio at expiry. Discuss the main advantages of this investment strategy. (7 marks)
Expert Answer:
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these finance questions
-
Suppose you buy one SPX call option with a strike of 1400 and write one SPX call option with a strike of 1450. What are the payoffs at maturity to this position for S&P 500 Index levels of 1350,...
-
Suppose you buy one SPX put option with a strike of 1400 and write one SPX put option with a strike of 1450. What are the payoffs at maturity to this position for S&P 500 Index levels of 1300, 1350,...
-
Suppose you buy 30 April 100 put option contracts. What is your maximum gain? On the expiration date, Hendreeks is selling for $84.60 per share. How much is your options investment worth? What is...
-
A solid conducting cylinder of radius 0.1 m and mass of 4 kg rests on horizontal conducting rails (Figure). The rails, separated by a distance a?= 0.4 m, have a rough surface so the cylinder rolls...
-
Answer the following questions related to Dubois Inc. (a) Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides...
-
Discuss the meaning of the phrase "probortunity."
-
The following are two unrelated situations: 1. You are the auditor of Xact Ltd., a company which at December 31,2001, had working capital of \($200,000\), total assets of \($2,500,000\), and total...
-
Comparative financial statements for Weaver Company follow: During 2009, the company sold some equipment for $20 that had cost $40 and on which there was accumulated depreciation of $16. In addition,...
-
An existing computer game is to be introduced into a new market segment. The following details relate to this product: Selling price per game: 100 Variable costs per game: 60 Fixed costs per annum...
-
Obtain the Laplace transform of f (t) in Fig. 15.28 . f(t) A 15 1 2 3 4 t
-
An intra-entity transfer took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year subsequent to the year of transfer?
-
I have a followup question for this python code. The scenario where my code is not correct is when: amount of donation$ is less than target donation goal After inputting some $ amount, the user...
-
The MegaMart Company began 2024 with inventory of 22,000 units at a cost of $9 per unit. During 2024, 62,000 units were purchased for $1015 each. Sales for the year totaled 72,000 units leaving...
-
Assume you have been given $400,000 CAD with access to all listed stocks, bonds, futures, and options worldwide. You can trade in options and futures, in combination with the underlying asset....
-
5) Convert to PIC24 assembly: while ((u16_i= u16_k) { loop-body statements Hint: Loop body statement is arbitrary, you can use NOP stands for NO-OPeration, as for line code inside the loop statement
-
Describe 5 global design-innovation trends that apply to telecommunications network engineering?
-
Sabemos que la evaluacin del proceso de enseanza-aprenSabemos que la evaluacin del proceso de enseanza-aprendizaje consiste en obtener datos de manera rigurosa y sistemtica para obtener informacin...
-
The process of collaborative goal setting by a manager and subordinate, the extent to which goals are accomplished is a major factor in evaluating and rewarding the subordinate's performance. It is...
-
What is the difference between a primary and a secondary market?
-
Gabriel Health Services Ltd. requires $1.5 million in financing over the new two years. The firm can borrow at 5 percent per year, over the two years. However with some economic forecasting, it has...
-
Amy Hirt started a paper route on January 1, 2009. Every three months, she deposits $300 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31, 2012, she...
-
Your family shares the cooking duties in the home. You've agreed to prepare the meal every 5 days. The last time you prepared dinner was a Tuesday. What day of the week will it be after you've...
-
You have agreed to text your friend every 3 hours while driving across the country. You began your trip at 8 AM. What time will it be when you text your friend the 15 th time?
-
If it is \(7: 00\) now, what time was it 34 hours ago?
Study smarter with the SolutionInn App