What are the risks and the rewards

Assignment Help Accounting Basics
Reference no: EM131627312

Question: Suppose the DJIA stands at 11,200. You want to set up a long straddle by purchasing 100 calls and an equal number of puts on the index, both of which expire in three months and have a strike of 112. The put price is listed at $1.65 and the call sells for $2.65.

a. What will it cost you to set up the straddle, and how much profit (or loss) do you stand to make if the market falls by 750 points by the expiration dates on the options? What if it goes up by 750 points by expiration? What if it stays at 11,200?

b. Repeat part a, but this time assume that you set up a short straddle by selling/ writing 100 July 112 puts and calls.

c. What do you think of the use of option straddles as an investment strategy? What are the risks, and what are the rewards?

Reference no: EM131627312

Questions Cloud

Why dan refused to pay : When Doctor billed Dan $500 for the x-ray, Dan refused to pay. Doctor sued Dan to recover the $500. Which of the following is true about Doctor's lawsuit
Traditional ethical theories and modern environmental ethics : Explain the relationship between traditional ethical theories and modern environmental ethics.
What is the rth : Rick owns stock in a retailer that he believes is highly undervalued. Rick expects that the stock will increase in value nicely over the long term.
Was it easy to use the leadership style : What leadership style did you use? Was it easy to use the leadership style? Or Hard?
What are the risks and the rewards : What do you think of the use of option straddles as an investment strategy? What are the risks, and what are the rewards?
Evaluate the benefits of each data structure : In this week, you will create a Word document to do following tasks: Evaluate the benefits and disadvantages of each data structure.
Dedicated team approaches to managing projects : What are the relative advantages and disadvantages of the functional, matrix, and dedicated team approaches to managing projects?
Calculate value of option using black and scholes formula : HSBC stock trades at £475.8 (Pound sterling) per share. A call option on the stock has a strike price of £490 and an expiration date of six months.
Explain why unreliable udp works well for streaming audio : Examples of applications that use TCP and UDP. Explain why unreliable UDP works well for streaming audio and video.

Reviews

Write a Review

Accounting Basics Questions & Answers

  Toddu2019s garden company manufactures a fertilizer known

toddu2019s garden company manufactures a fertilizer known as great garden. the manufacturing process begins in the

  The company has decided to allocate the cost based on the

tylers consulting company has purchased a new 15000 copier. this overhead cost will be shared by the purchasing

  Leslie sporting goods is a locally owned store that

nbspleslie sporting goods is a locally owned store that specializes in printing team jerseys. the majority of its

  Saul cervantes has just purchased some equipment for his

saul cervantes has just purchased some equipment for his landscaping business. for this equipment he must pay the

  Muncy inc is looking to add a new machine at a cost of

muncy inc. is looking to add a new machine at a cost of 4133250. the company expects this equipment will lead to cash

  Overhead application rate of canoe company

Canoe Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. Canoe Company's production costs for the year were: direct labor, $30,000; direct materials, $50,000; and factory overhead applied..

  Access virtual organizations to obtain company information

Access Virtual Organizations to obtain company information on Riordan Manufacturing, or select an organization with which you are familiar. Obtain instructor approval for your company selection.

  Suspended passive loss

Several years ago, Joy acquired a passive activity. Until 2004, the activity was profitable. Joy's at-risk amount at the beginning of 2004 was $300,000. The activity produced losses of $80,000 in 2004, $50,000 in 2005, and $70,000 in 2006; it prod..

  At the beginning of its 2010 calendar-year accounting

at the beginning of its 2010 calendar-year accounting period abc inc. had retained earning of 1500000. during 2010 abc

  The company has set the following standards for materials

the company has set the following standards for materials and labor standard quantity or hours per unit standard price

  While reading a recent issue of health & fitness

The ad captured Wilde's attention, in part because he recently had been concerned that the interest charges incurred by his business were getting out of line. The price, though, was somewhat higher than prices for this model he had seen elsewhere.

  Method of computing depreciation

Is it necessary for a business to use the same method of computing depreciation (a) for all classes of depreciable assets, (b) in the financial statements and in determining income taxes? Explain your answer.

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