Long currency strangle, Business Economics

Assignment Help:

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.


Related Discussions:- Long currency strangle

Advantages and disadvantages of Pure Monopoly, What is Monopoly and how doe...

What is Monopoly and how does it affect the economic postively and negatively?

Statistics, difference b/w statistics in singular and plural sense

difference b/w statistics in singular and plural sense

Price elasticity of demand, explain why each of the following factors influ...

explain why each of the following factors influence the own price elasticity of demand for a comodity 1. Consumer preferences 2. the narrowness of definiton of the commodity

Calculate the standard error, The Wallpaper Shop, Inc., is a rapidly growin...

The Wallpaper Shop, Inc., is a rapidly growing chain of wallpaper shops that caters to the do-it-yourself home remodeling market. During the past year, 15 stores were operated in s

What causes migration, What causes migration? Rural-to-urban migration...

What causes migration? Rural-to-urban migration is a usual LDC experience. Those are migrates within search of better SoL, those are generally younger, less risk adverse and b

Cournot model, Consider a Cournot duopoly. The market demand is p=190-q1-q2...

Consider a Cournot duopoly. The market demand is p=190-q1-q2. Firm 1's marginal cost is 40, and firm 2's marginal cost is also 40. There are no fixed costs. A.    Derive every fir

How does social capital influence development, How does social capital infl...

How does social capital influence development? Problem: Low social capital leads to potential conflicts and high transaction costs which hinder growth. Several LDCs (Less Deve

Why is AIDs a major economic problem, Why is AIDs a major economic problem?...

Why is AIDs a major economic problem? AIDs are a tragedy which is affecting the structure and size of population. There AIDs is widespread in between the economically active th

Fiscal policy, Fiscal Policy The government's use of spending and taxat...

Fiscal Policy The government's use of spending and taxation to affect the stage of macroeconomic moment. In theory, weak economic activity needs simulative fiscal policy, which

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd