Given a call warrant, with a strike price $168, the conversion ratio is 30, price of...
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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)
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Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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