Mr. Kent, one of your clients, has been reading his daughters finance textbook and has a question
Question:
Step by Step Answer:
Mr Kent is confusing long and short option positions The holde...View the full answer
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Accounting questions
-
At what stages does a defendant have the right to counsel?
-
Based on the case of Nike Inc and Sweatshops, 1. Frame the issues of the case and frame the problem(s) you will be addressing 2. Describe the methods and resources used to study the case, and analyze...
-
One of your clients has recently read about the goal of converging to International Accounting Standards and they are concerned about what impact it may have on their company. 1. Discuss some of the...
-
Sunita inherits $45,000 from a distant relative. She decides to invest her inheritance in a diversified, dividend-paying mutual fund. At the time of her initial investment, she purchases 1,500 shares...
-
In accounting, deductive approaches are generally normative. Why do you think this is the case?
-
A market researcher working for the bank in Exercise 2 wants to know if the distribution of applications by card is the same for the past three mailings. She takes a random sample of 200 from each...
-
If you were asked to develop a training plan for an HRIS implementation, what kinds of things would you include? Why?
-
Refer to the data in Exercise 16-2 for Heritage Antiquing Services. Required: Compute the following financial ratios for long-term creditors for this year: 1. Times interest earned ratio. 2....
-
The rate of discount is given as d = (R-P)/R.n Where R is redemption value, P is initial price and n is time to redemption If the current rate of discount on treasury bills is quoted at 3%: i....
-
***u//:sdnu KPMG is not Upton Park Limited's (UPL) regular tax adviser. However, the KPMG tax partner has regularly met with the CFO Veronika Gruenholz, and provided insights on UPL's industry, with...
-
Complete the followingtable. At expiration Payoff Value of under-In/Out (intrinsic Value of Long or Callr Strike option ling of the value) of Profit short put price today asset money option (loss)...
-
You observe the following data on different options. What are the profits you would earn for every possible price of the underlying stock at the exercise date for each of the following strategies? a....
-
What are the appropriate null and alternative hypotheses for this study? A. H 0 : x = 0 years; H a : x > 0 years B. H 0 : = 0 years; H a : > 0 years C. H 0 : = 0 years; H a : > 0 years D. H 0 : p...
-
A 50% reaction (Parsons half-degree reaction) turbine is to be designed, having a mean diameter of 0.5 m and blade height of 30 mm. The blade angles are 60 degrees at inlet and 160 degrees at outlet....
-
Derive the differential equation of motion for the U-tube manometer shown below and obtain the period of oscillations. You may assume that the viscosity of the liquid is negligible. Denote the...
-
A steam turbine is to be designed using impulse stages. The inlet pressure is 10 bar absolute and 500C and outlets to a condenser at a pressure of 0.04bar absolute. At design stage the isentropic...
-
b) The following Table 1 shows the number of sport shoes in one of Al-Ilman products produce by a factory in year 2023. Forecast: [Jadual 1 berikut menunjukkan bilangan kepada kasut sukan dalam...
-
6a. 6b. Draw free body diagrams and write equations of motion for x and 0 of the cylindrical mass in the following system. Use a right-hand coordinate system where > 0 for counterclockwise rotation....
-
5. Peters Paper Clips uses a three-stage production process: cutting wire to prescribed lengths, inner bending, and outer bending. The cutting process can produce at a rate of 200 pieces per minute;...
-
What is the order p of a B + -tree? Describe the structure of both internal and leaf nodes of a B + -tree.
-
A flat conducting plate is centered in the \(x y\) plane of an \(x y z\) coordinate system in which the \(x y\) plane is horizontal. A bar magnet is lowered vertically toward the plate. If the magnet...
-
In what way can managers use dividends to con-vey pertinent information about their firms in a world of informational asymmetry? Why would a manager choose to convey information via a dividend...
-
Why is it difficult for a firm with weaker cash flows to mimic a dividend increase undertaken by a firm with stronger cash flows?
-
According to the residual theory of dividends, how does a firm set its dividend? With which dividend policy is this theory most compatible? Does it appear to be empirically validated?
-
A 1 kg metal block is heated to 200 C and then dropped into a thermally isolated container with 4 kg of water and 100 gr of ice both at a temperature of 0 C. If the specific heat of water is cw=4186...
-
Why are both ER Diagrams and Relational Modeling needed when a database system is developed?
-
Which data model provides a user with the best "program-data independence"? A. Hierarchial Model B. Network Model C. Relational Model D. Entity Relationship Model Why?
Study smarter with the SolutionInn App