Illustrating a straddle, Financial Management

Options Traded on Legal and General August 14  2009

Share   Price         Exercise      Price    Calls       Puts

                                Sep        Dec        Mar        Sep        Dec        Mar

65.90    64           4.50        7.75        9.75        3.50        6.75        8.75

            68           3.50        5.75        7.75        5.75        8.75        10.75

a)  Draw a profit diagram for an investor in a call option with an exercise price of 64 that expires in March and explain the diagram. Undertake the same analysis for the writer of the call. Comment on the contention that options are a zero sum game for the writer and investor in options.

b)  Explain carefully why the March calls are trading at higher prices than the December calls.

c)  Draw a diagram illustrating a straddle, using calls and puts expiring in March and an exercise price of 64.  Explain why an investor might consider it worthwhile to invest in a straddle and comment on the expected profitability of such an investment.

 

Posted Date: 2/22/2013 4:19:31 AM | Location : United States







Related Discussions:- Illustrating a straddle, Assignment Help, Ask Question on Illustrating a straddle, Get Answer, Expert's Help, Illustrating a straddle Discussions

Write discussion on Illustrating a straddle
Your posts are moderated
Related Questions
What are the Reasons why organisations grow Required to provide higher financial returns to investors e.g. increases the wealth of shareholders Possible to achieve econ

High-yield bonds are issued by organizations that do not qualify for "investment-grade" ratings by any one of the leading credit rating agencies

Deterministic Model After the macroeconomic, industrial and business analysis of the company chosen is done First of all a point estimate for all the input variables in a valua

State about the Financing MBO There are many sources of finances available for an MBO Venture capitalists Merchant banks Institutional investors such as pension funds

Explain what will happen while the government imposes a minimum price that is below the market equilibrium price. Why is this true? The minimum price will comprise no impact on t

I keep getting different answers in excel and the financial calculator. is there someone who can walk me through this problem step by step: You plan to buy a new house for $250,0

Criticism from the viewpoint of the proponents of the flexible exchange rate regime. Economic agents can hedge exchange risk through forward contracts and other methods. They do

It shows the date and corresponding prices at which the issuer can call back bonds. The issuer pays higher premium over the par value of the bond if the bond is c

The number of properties sold every month indicates that Thorne Co experiences seasonal trends in its business. There is an sign that property sales are at a low level in winter an

Q. Example on compound value of the single flow? Mr. X invests Rs. 1000 at 10% is compounded yearly for three years. Compute value after three years. FV = PV (1+i) n FV