McDonalds (symbol: MCD) is currently trading at $94 in May 21, 2015, and an investor decides to
Question:
McDonalds (symbol: MCD) is currently trading at $94 in May 21, 2015, and an investor decides to short 2 put options contracts on July '15 (strike price 90) for $1.10 per contract, and at the same time, to long 2 put options contracts at the same maturity (strike 100) for $8.0 per contract.
a) In doing this options strategy, what is the investor expectation on MCD stock price for the next 2 months? And, the name of this strategy?
b) What is the total cost of this strategy per contract and the total margin account required? Is there a debit or credit in the cash flow for the investor, and why?
c) Draw a complete P&L diagram (in $ per contract), indicating all calculations involved in each step of its construction.
d) What would be the resulting P&L of this trade position using the 2 contracts if the stock price of MCD reaches $87 at expiration?
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown