Long currency strangle, Business Economics

Speculating with Long Currency Strangle:

A long currency strangle involves buying both a call option and a put option for a particular foreign currency with the same expiration date but with different strike prices. The most common type of strangle involves buying a put option with a lower strike price than the call option that is purchased. But other types are also possible. Suppose that a speculator predicts substantial volatility in the exchange rate of euro and so buys a long euro currency strangle with following terms and conditions:

Call option premium is $0.025 per unit.

Put option premium is $0.02 per unit.

Call option strike price is $1.10.

Put option strike price is $1.05.

One option contract represents €62,500.

Required:

Prepare a worksheet for the long currency strangle assuming that the future spot rate of euro at option expiration is $0.95, $1.00, $1.05, $1.10, $1.15, or $1.20 and show the net profit or loss per unit.

Construct a contingency graph for a long currency strangle and below the graph show the related net profit or loss to the straddle buyer?

Identify the future spot price(s) at which the strangle buyer makes no profit no loss (i.e., break-even point). Interpret your findings and draw implications for speculators.

Posted Date: 2/21/2013 1:56:44 AM | Location : United States







Related Discussions:- Long currency strangle, Assignment Help, Ask Question on Long currency strangle, Get Answer, Expert's Help, Long currency strangle Discussions

Write discussion on Long currency strangle
Your posts are moderated
Related Questions
why do companies privitise? what is the objectives of privitisation? what are the advantages and disadvantages of privitisation?

Suppose you have ten individuals with values ( $1, $2, $3, $4, $5, $6, $7, $8, $9, $10) . Your marginal cost of production is $2.50. What is the profit maximizing price?

What is the definition of land productivity?

How can the population controlled? Governments can take some steps to controlled populations: • Enhance the education of women and their employment opportunities raises and

A. CALCUATE THE OPTIOMAL MONEY GROWTH RATE NEEDED FOR THE FED TO HIT ITS INFLATION TARGET RUN

What are the problems of Environment in Economic Growth? Environment Problem: Economic growth can damage the environment by: • Negative externalities as an example waste thr

Suppose that a company knows that on average, 30% of guests at a hotel will eat at the hotel restaurant. What is the probability that on a given night that at least 33% of the 160

advantages of government grants


QUESTION 1 Learning has always been at the centre of improved performance in organisations. Taking an organisation of your choice, discuss how E-learning might be an efficient