Discuss the potential risks and returns from using

Reference no: EM13260473

Ed martin, the pension fund manager for Strak Corporation, is considering purchase of a put option in anticipation of a price decline in the stock of Carlisle, Inc. The option to sell 100 shares of Carlisle, Inc at any time during the next 90 days at a strike price of $45 can be purchased for $380. The stock of Carlisle is currently selling for $46 per share.

a. Ignoring any brokerage fees or dividends, what profit or loss will Ed make if he buys the option and the lowest price of Carlisle stock dring the 90 days is $46, $44, $40 and $34?
b. What effect would the fact that the price of Carlisle's stock slowly rose from its initial $46 level to $55 at the end of 90 days have on Ed's purchase?
c. In light of your findings, discuss the potential risks and returns from using put otions to attempt to profit from an anticipated decline in share price?

Reference no: EM13260473

Questions Cloud

What are the expected cash receipts for march : If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?

Explain the molar mass of the vapor in the flask : From the time the mass of the flask is first measured until the time it is finally measured, it is handled a number of times with oily fingers. Does this lack of proper technique result in the molar mass of the vapor in the flask being reported as..

What is the effective or net cost of the large press : If the firm could purchase a press that would provide slightly better quality and $26,000 annual cash inflow for 10 years for a price of $120,000 which alternative would you recommend? Why?

Parents of children with special needs : Parents of children with special needs will often come to you for help and advice. It is good to have some "go to" resources to help parents get help and information.

Discuss the potential risks and returns from using : In light of your findings, discuss the potential risks and returns from using put otions to attempt to profit from an anticipated decline in share price?

What was the initial speed of the lighter car : A 900- kg car collides with a 1300- kg car that was initially at rest at the origin of an x-y coordinate system. What was the initial speed of the lighter car (in km/h)

Estimate the time measured between events by the ships clock : A spaceship leaves earth (Event A), travels to pluto (which is 5.0 h away at the time), and then returns (Event B) exactly 11.0 h later. estimate the time measured between events A and B by the ship's clock

How much will carol earn on the option transaction : Compare, contrast, and discuss the relative profit and risk associated with the stock and the option transactions?

Explain the mass of the flask is measured : The mass of the flask (before the sample is placed into the flask) is measured when the outside of the flask is wet. However, the outside of the flask is dried before its mass is measured.

User Account

All Pages