You are currently bearish on Naspers (JSE: NPN) believing that it is overvalued while you hold Prosus (JSE: PRX) in your portfolio. Since Naspers and Prosus are highly correlated, you would like to take advantage of the depreciation in NPN and protect yourself against a significant drop in PRX. You have therefore decided to use a bear spread (for NPN) and a protective put (for PRX).



Share - NPN

Price = 3123.63
Exercise Price = 2973.71
Put Premium = 17.38
Variance = 0.0133
Time to Maturity = 6 months
Risk Free Rate = 0.0778


Share - NPN

Price = 3123.63
Exercise Price = 3273.59
Put Premium = 115.01
Variance = 0.0133
Time to Maturity = 6 months
Risk Free Rate = 0.0778


Share - PRX

Price = 1420.46
Exercise Price = 1380.69
Put Premium = 13.82
Variance = 0.0141
Time to Maturity = 6 months
Risk Free Rate = 0.0778

Using the information provided above, draw the appropriate profit diagrams including all relevant labels.

Answer rating: 100% (QA)

1 Bear Spread for NPN Sell 1 NPN Call Option with an exercise price of 327359 Buy 1 NPN Call Option ... View the full answer