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 are countries that let people respond to the inborn profit motive better off than those countries that do not?

What are the limitations of balanced growth? The limitations of balanced growth: • The strategy of balanced growth is away from the resources of most poor countries; • Go

Define the difference between configuration management and change control and the relationship among them. Change control is the management of the project scope. Configuration


Foreign Exchange Market and Arbitrage Process: 1. Suppose that the Brazilian Real is quoted at R 0.9955-1.0076/US$ and the Thai Baht is quoted at B25.2513-3986/US$. What is

The following represents the potential outcomes of your first salary negotiation after graduation: Assuming this is a sequential move game with the employer moving first, indicate

Why is not Aid improving development? Aid not improves development because: • Aid is spent on current consumption • It is spent on unsuitable capital as opposed to suitab

Tasks "Accounting standard setting is a political lobbying process, and as such offers various Opportunities and means for interested parties to affect its outcomes." Require

What is Foreign Debt Management? Debt management considers as to the arrangements made to: • Protected the suitable amount of borrowing to deliver growth • Ignore excess

Question 1: (a) "Money demand is inversely related to interest rates and is stable over time." Discuss the theoretical and empirical validity of this statement. (i) Analyse