On Friday, OCT 5, 2007 Mr. AJ bought 100,000 shares of Yahoo for $27.90/share. At the same
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On Friday, OCT 5, 2007 Mr. AJ bought 100,000 shares of Yahoo for $27.90/share. At the same time, AJ bought 1,000 of the T = OCT, K = $27.50 puts for p = $.90/share and sold 1,000 of the T = OCT, K = $27.50 calls for $1.40/share. All options are CBOE options thus, each covers 100 shares of the underlying stock. These options expire on OCT 18, 2007 i.e. in exactly 14 days.
- Show the complete table of cash flows and P/L at expiration of AJ's strategies.
- Explain why or why not, AJ's strategy is an arbitrage profit marking strategy.
Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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