The hedge ratio of an at-the-money call option on IBM is .4. The hedge ratio of an
Question:
The hedge ratio of an at-the-money call option on IBM is .4. The hedge ratio of an at-the-money put option is - .6. What is the hedge ratio of an at-the-money straddle position on IBM?
Step by Step Answer:
A straddle is an options strategy in which the investor holds a position in both a call and p...View the full answer
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 Corporate Finance questions
-
Consider a call option on IBM stock with strike price of $55 and which has 6-months until expiration. The current IBM stock price is $60/share and the continuously compounded interest rate is 10%....
-
An investor owns a call option on bond with a strike price of 100. The coupon rate on bond is 9% and has 10 years to maturity. The call option expires today at a time when bond is selling to yield...
-
The short position in a put option has the obligation to buy if the option is exercised. Isnt this counter to the notion that a short position indicates a sell? Explain your answer.
-
The following linear systems Ax = b have x as the actual solution and x as an approximate solution. Compute ||x x|| and ||Ax b|| a. 1/2 x1 + 1/3 x2 = 1/63, 1/3 x1 + 1/4 x2 = 1/168, x = ( 1/7 ,1/6)t...
-
Zielinski Corporation issued the following statement of cash flows for 2012. ZIELINSKI CORPORATION Statement of Cash Flows-Indirect Method For the Year Ended December 31, 2012 Cash flows from...
-
The structure of MRP systems suggests buckets and infinite loading. What is meant by these two terms?
-
With reference to Exercise 3.1, suppose that the points \((0,0),(0,1),(0,2),(0,3),(1,0),(1,1),(1,2),(1,3)\), \((2,0),(2,1),(2,2),(2,3),(3,0),(3,1),(3,2)\), and \((3,3)\) have the probabilities...
-
Comway Corporation is a medium- sized shoe wholesaler whose sales territory includes Illinois, Michigan, and Indiana. Every day, the sales managers for these states collect orders from retail stores....
-
How can integrative negotiation strategies, rooted in principles of mutual gains and interest-based bargaining, foster collaborative conflict resolution in complex interpersonal or organizational...
-
1. As completely as possible, sketch the value delivery network for Apple Pay. 2. With respect to Apple Pay, is Apple a producer, a consumer, or an intermediary? Explain. 3. Identify all the reasons...
-
If the time to expiration falls and the put price rise, then what has happened to the put option's implied volatility?
-
Return to Problem 36. Value the call option using the risk-neutral shortcut described in the box on page 736. Confirm that your answer matches the value you get using the two-state approach Problem...
-
The following overhead cost information is available for the Herbert Love Corporation for the prior year: During the year, 8,000 purchase orders were issued; 25,000 shipments were received; 4,000...
-
During a very bad recession the nations disposable income fell by 10 percent, while its consumption of a certain good rose by 5 percent. That good was _______good. a) a complementary b) a substitute...
-
Can more than one of the four main approaches to job design be used at the same time to design a job? Can you provide an example of how this could work?
-
Which statement is false? a) AFC plus AVC equals ATC. b) Marginal cost equals AVC at an output of one. c) AVC equals ATC at an output of one. d) None of the above.
-
A firm seeking to maximize its total revenue would lower its price until price elasticity of demand was ______. a) a maximum b) a minimum c) one
-
We discussed the three major generic strategies. Can you think of examples of each of the three strategies in specific businesses you know of? In your opinion, how successful have these companies...
-
Calculate the contribution margin for each department and income before taxes, based on the following: Dept. A 7,000 square feet Dept. B 17,000 square feet Net Sales $66,000 $81,000 Cost of Goods...
-
Floyd Distributors, Inc., provides a variety of auto parts to small local garages. Floyd purchases parts from manufacturers according to the EOQ model and then ships the parts from a regional...
-
Suppose that you sell short 250 shares of Weston (WN), currently selling for $80 per share, and give your broker $15,000 to establish your margin account. a. If you earn no interest on the funds in...
-
Using historical risk premiums from Table 5.4 over the 1926-2016 period as your guide, what would be your estimate of the expected annual HPR on the BigNalue portfolio if the current risk-free...
-
Using historical risk premiums from Table 5.4 over the 1926-2016 period as your guide, what would be your estimate of the expected annual HPR on the BigNalue portfolio if the current risk-free...
-
What are the intricate molecular mechanisms underlying adaptive immunity, particularly focusing on the processes of clonal selection, antigen recognition by T and B lymphocytes, and the generation of...
-
discuss the concept of immune privilege in tissues such as the central nervous system, reproductive organs, and the eye, elucidating the mechanisms that maintain tissue-specific immunological...
-
discuss the intricacies of immune tolerance mechanisms, including central and peripheral tolerance induction, and their roles in preventing autoimmune reactions while preserving immune responsiveness...
Study smarter with the SolutionInn App