Stock A is currently trading @ 5500. Christian is expecting the markets to rise from these...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Stock A is currently trading @ 5500. Christian is expecting the markets to rise from these levels. By selling 50 Put Options of A having Strike 5600 @premium 150 each and buying 50 Put Options of A having Strike 5400 @ premium 50 each, Christian can get an inflow of the premium of 5000 and benefit if A stays above 5500. Christian's profit is below: 6000 4000 2000 0 -2000 -4000 -6000 5200 5300 5400 5500 5600 5700 5800 Q8. Discuss advantages/disadvantages of this strategy. What is the max that Christian can lose and what is the breakeven stock price? Stock A is currently trading @ 5500. Christian is expecting the markets to rise from these levels. By selling 50 Put Options of A having Strike 5600 @premium 150 each and buying 50 Put Options of A having Strike 5400 @ premium 50 each, Christian can get an inflow of the premium of 5000 and benefit if A stays above 5500. Christian's profit is below: 6000 4000 2000 0 -2000 -4000 -6000 5200 5300 5400 5500 5600 5700 5800 Q8. Discuss advantages/disadvantages of this strategy. What is the max that Christian can lose and what is the breakeven stock price?
Expert Answer:
Answer rating: 100% (QA)
The strategy being described in the question is an options spread strategy that involves the selling writing of put options combined with the buying o... View the full answer
Related Book For
Fundamentals of Investments Valuation and Management
ISBN: 978-0077283292
5th edition
Authors: Bradford D. Jordan, Thomas W. Miller
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
Listed below are measured amounts of caffeine (mg per 12 oz of drink) obtained in one can from each of 20 brands (7-UP, A&W Root Beer, Cherry Coke, . . . , Tab). Are the statistics representative of...
-
A 3.6-lb collar A and a 1.4-lb collar B can slide without friction on a frame consisting of the horizontal rod OE and the vertical rod CD, which is free to rotate about its vertical axis of symmetry....
-
In words, define the random variable X. The age of cars in the staff parking lot of a suburban college is uniformly distributed from six months (0.5 years) to 9.5 years.
-
We wish to strip \(\mathrm{SO}_{2}\) from water using pure air at \(20.0^{\circ} \mathrm{C}\). Outlet water contains \(0.0060 \mathrm{~mol} \% \mathrm{SO}_{2}\), and inlet water contains \(0.112...
-
Explain whether the following statements are true or false. a. Derivative transactions are designed to increase risk and are used almost exclusively by speculators who are looking to capture high...
-
Texas Waterfront Art sold $3,200 of inventory to customers for $4,000 cash during December. For the first eleven months of the year, the company's ROS was 47 percent. What effect will the December...
-
This project will test your understanding of the Sage 50 Accounting application and your ability to apply the features of this application. You will be using many of the skills that you have acquired...
-
Spirits Inc. is a manufacturer of various vodka based products, including flavoured vodkas and coolers. Spirits has an enviable reputation for quality products at reasonable prices. In fact, the...
-
The amount of A+B+C is? Please fill the figure without symbol "$" LMN operates a system of flexible budgets. The flexed budgets for expenditure for the first two quarters of year 3 are given below....
-
EEOC ( Equal Employment Opportunity Commission) Need to write what I expect to learn with them as an Intern. 1.Communication Strategies 2.Planning 3.Production of Communication Product 4.Graphic...
-
Consider a closed economy producing three commodities: steel, coal and wheat. The production is carried out in the following way: - 1 tonne coal is used to produce 1 tonne of steel. 1/3 tonne steel...
-
you must write YOUR professional biography. Highlight your work experience, education, volunteer work, and anything else that you consider relevant. Your introduction should be at least two...
-
calculate sale proceeds use those information below oard Name of Investment Purchase Price Indie Ruth Asset $50,000,000 Date Acquired 1/3/2021 Sources of Capital $ Amount Ratio % Debt Proceeds $0 0%...
-
when Judy adds 1 . 0 kg of unknown liquid at a temperature of 2 5 \ deg c to 2 . 0 kg of water at a temperature of 4 5 \ deg c , the final temperature of the mixture is 4 0 \ deg c , assuming no loss...
-
Do animals have rights? If so, what are they? What duties do human beings have toward animals? Does KFC protect animal welfare at an acceptable level?
-
What are some examples of embedded options in bonds? How do they affect the price of a bond?
-
You find the following order book on a particular stock. The last trade on the stock was at $70.54. a. If you place a market buy order for 100 shares, at what price will it be filled? b. If you place...
-
The weekly standard deviation of a stock is 6.48 percent. What is the monthly standard deviation? The annual standard deviation?
-
In leaching, the final saturated raffinate often contains a significant amount of solvent. For example, this occurs in Example 14-2. How do you recover this solvent? Example 14-2 We wish to treat...
-
How does solid enter into washing calculations? Where does solids flow rate implicitly appear in Figure 14-1? Feed U, xo A Mixer Settler B Underflow Stage I Overflow 0112 Stage 2 U | 2 N-1 N Uo,xo xj...
-
Washing clothes is most similar to large-scale washing when (select the best answer) a. the clothes are washed by hand. b. the clothes are washed with detergent but no soap. c. the clothes are washed...
Study smarter with the SolutionInn App