Benefits of building a collar strategy, Corporate Finance

a)    Put options on Chicken King with a strike price of $42.50 and 2 months to maturity are properly priced to sell for $3.68 (no bid-ask spread).  Call options with the same strike and maturity are selling for $0.88.  If the current price of Chicken King's stock is $39.75 and the risk-free rate is 4% p.a., explain how you can profit from the situation without taking on any net risk to yourself.

b)    Compare the costs and benefits of building a collar strategy to hedge a short risk exposure vs. just buying a call option.  What factors would influence your choice between the two strategies?

c)    Why aren't most options exercised before expiration, even when they are in the money?

 

 

Posted Date: 2/27/2013 6:35:50 AM | Location : United States







Related Discussions:- Benefits of building a collar strategy, Assignment Help, Ask Question on Benefits of building a collar strategy, Get Answer, Expert's Help, Benefits of building a collar strategy Discussions

Write discussion on Benefits of building a collar strategy
Your posts are moderated
Related Questions
Explain with proof that c >= max(S - X, 0), where c is the value of the European call option, S is the price of the underlying asset and X is the strike of the option. The follo

reasons for capital rationing in public sector

In an application of the concepts employed in the example problem and solution, this problem assigns the analysis like that of the example problem to the Food Processing indu

1. How do you calculate the present value of a Company's bonds? 2. "An analysis of the magnitude and stability of cash flows comparative to fixed charges is very important in de

Measuring the Behaviour of Stock in the Estimation Window and the Event Window As its name implies, the estimation window is used to estimate a model of the stock's returns un

corporate finance, Financial Accounting Calculate the market value of Renowned Cola''''s debt at year-end 2005. What is the book value of debt? Why do usually use market or book va

Suppose that Oxford Inc. is interested in the two new products, AME and CGK. Because of its capital budget constraint, it can only launch one new product line. Eric just graduated

Methodology of an Event Study In this section we outline the methodology of an event study. In suc- ceeding sections we apply the methodology to a number of different cases. A

1. A contributes property to X, a newly formed corporation, in exchange for 75 shares.  As part of the same transaction, B contributes services to X in exchange for the remaining 2

Question: 1929/ 2009: a remake of the worst financial crisis affecting the whole world? Central Banks and Governments are implementing all sorts of rescue plans incorporatin