Suppose you invest in the S&R index for $1000, buy a 950-strike put, and sell a 1050 strike call. Draw a profit diagram for this position. What is the net option premium? If you wanted to construct a zero-cost collar keeping the put strike equal to $950, in what direction would you have to change the call strike?
Answer to relevant QuestionsSuppose you invest in the S&R index for $1000, buy a 950-strike put, and sell a 1107 strike call. Draw a profit diagram for this position. How close is this to a zero-cost collar? Construct an asymmetric butterfly using the 950-, 1020-, and 1050-strike options. How many of each option do you hold? Draw a profit diagram for the position. Suppose you short the S&R index for $1000 and buy a 1050-strike call. Construct payoff and profit diagrams for this position. Verify that you obtain the same payoff and profit diagram by borrowing $1029.41 and buying a ...Suppose that Wirco does nothing to manage the risk of copper price changes. What is its profit 1 year from now, per pound of copper? Suppose that Wirco buys copper forward at $1. What is its profit 1 year from now? •XYZ ...Use the same assumptions as in the preceding problem, without the bid-ask spread. Suppose that we want to construct a paylater strategy using a ratio spread. Instead of buying a 440-strike call, Auric will sell one ...
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