Find the cost of a strangle using the options with strikes

Assignment Help Financial Management

Reference no: EM131972234

For M Corporation, which is currently trading for $31 per share:

Call Options	Put Options
Strike	Bid Price	Ask Price	Strike	Bid Price	Ask Price
$20	$12.15	$12.33	$20	$0.76	$0.89
$25	$7.26	$7.39	$25	$1.05	$1.18
$30	$2.55	$2.66	$30	$1.84	$1.97
$35	$1.46	$1.59	$35	$5.67	$5.81
$40	$0.88	$0.97	$40	$10.79	$10.95

a) Find the cost of a butterfly spread using the call options with strikes of 25, 30 and 35. Draw the profit diagram and show the profit for the ending stock price in the appropriate ranges

b) Now do the same thing for a butterfly spread using the 20, 30 and 40 strike price call options.

c) Find the cost of a straddle using options with a strike price of 30. Draw the profit diagram and show the profit for the ending stock price in the appropriate ranges.

d) Find the cost of a strangle using the options with strikes of 25 and 35. Draw the profit diagram and show the profit for the ending stock price in the appropriate ranges.

e) Find the cost of a strangle using the options with strikes of 20 and 40. Draw the profit diagram and show the profit for the ending stock price in the appropriate ranges.

Reference no: EM131972234

Questions Cloud

What if you wait 10 years before contributing : Assume you earn an annual return 10.95 percent and make no additional contributions. What will your account be worth when you retire in 41 years?

Financial independence planning-comprehensive financial plan : Briefly what is Financial Independence Planning and Comprehensive Financial Plan? How are they important towards Finance?

How much revenue should sage recognize : Sage Company sells goods that cost $316,000 to Ricard Company for $440,000 on January 2. How much revenue should Sage recognize related to its sale to Ricard?

Explain some of the deductions allowed in tax laws : Explain some of the deductions allowed in tax laws. When is it beneficial to itemize deductions instead of taking a standard deduction?

Find the cost of a strangle using the options with strikes : Find the cost of a straddle using options with a strike price of 30. Draw the profit diagram and show the profit for the ending stock price in the appropriate.

What is the importance of taxes in our economy : Describe the items included in computing gross income and adjusted gross income. What is the importance of taxes in our economy?

Computing gross income and adjusted gross income : Describe the items included in computing gross income and adjusted gross income. What is the importance of taxes in our economy?

Calculate the accounting break-even level of sales in dollar : What if the price of the machine turns out to be $120,000 instead of $100,000 (assume straight line depreciation)? What happens to net present value?

Prepare adjusting journal entries for salem trading company : Salem trading company unadjusted trial balance Dec 31, 2016. Prepare adjusting journal entries for the following and post to the T-accounts.

User Account

All Pages