What is the role of butterfly structures in given case

Assignment Help Finance Basics
Reference no: EM131697054

Question: Double no-touch options is another name for range binaries. Read the following carefully, and then answer the questions at the end. Fluctuating U.S. dollar/yen volatility is prompting option traders managing their books to capture high volatilities through range binary structures while hedging with butterfly trades. Popular trades include one-year double no touch options with barriers of JPY126 and JPY102. Should the currency pair stay within that range, traders could benefit from a USD1 million payout on premiums of 1520%. On the back of those trades, there was buying of butterfly structures to hedge short vol positions. Traders were seen buying out-of-the-money dollar put/yen calls struck at JPY102 and an out-of-the-money dollar call/yen put struck at JPY126. (Based on an article in Derivatives Week (now part of Global Capital).)

a. Display the payoff diagram of the structure mentioned in the first paragraph.

b. When do you think these options will be more useful?

c. What is the role of butterfly structures in this case?

d. What are the risks of a short position in range binaries?

e. How much money did such a position make or lose "last Tuesday"?

Reference no: EM131697054

Questions Cloud

How much will they have in 10 years : They plan to deposit the money at the beginning of each quarter into an account paying 4% compounded quarterly. How much will they have in 10 years?
How different countries approach aging : Do older adults live with their children, or are they more likely to live in a nursing home - Are older adults seen as wise individuals to be respected
Recommendation state your supporting rationale : Recommend specific risk coverages for your client and for each recommendation state your supporting rationale.
Write a summary of the core issue of the project : What is the date for completion of each task, who is going to do it, etc. What are the deliverables, either for each task, or at the end.
What is the role of butterfly structures in given case : Double no-touch options is another name for range binaries. Read the following carefully, and then answer the questions at the end. Fluctuating U.S. dollar/yen.
Performance with respect to survivability and lethality : What type of testing is performed to determine a weapon system's performance with respect to survivability and lethality?
How are data structures managed and organized : How are data structures managed and organized in this language? How does management or syntax of data structures in this language differ from other language?
Managed care contracting and ratio analysis : Assume that you are a financial manager, and one of your responsibilities is to monitor the financial performance of your competitors.
Range accrual option similar to strangle-straddle position : The next question deals with a different type range option, called a range accrual option. Range accrual options can be used to take a view on volatility.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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