Illustrating a straddle, Financial Management

Assignment Help:

Options Traded on Legal and General August 14  2009

Share   Price         Exercise      Price    Calls       Puts

                                Sep        Dec        Mar        Sep        Dec        Mar

65.90    64           4.50        7.75        9.75        3.50        6.75        8.75

            68           3.50        5.75        7.75        5.75        8.75        10.75

a)  Draw a profit diagram for an investor in a call option with an exercise price of 64 that expires in March and explain the diagram. Undertake the same analysis for the writer of the call. Comment on the contention that options are a zero sum game for the writer and investor in options.

b)  Explain carefully why the March calls are trading at higher prices than the December calls.

c)  Draw a diagram illustrating a straddle, using calls and puts expiring in March and an exercise price of 64.  Explain why an investor might consider it worthwhile to invest in a straddle and comment on the expected profitability of such an investment.

 


Related Discussions:- Illustrating a straddle

Describe the meaning of financial management, Q. Describe the Meaning of Fi...

Q. Describe the Meaning of Financial Management? Meaning of Financial Management: - Financial management is a vital as well as an integral part of business management. It demot

What is usual approach of capital structure, Q. What is usual Approach of c...

Q. What is usual Approach of capital Structure? Ans. Traditional Approach: - The traditional approach establishes middle among the Net Income approach and the Net Operating Inc

Duration, Now that we have an understanding about price volatility ...

Now that we have an understanding about price volatility characteristics of a bond, let us turn to the duration/convexity approach, which is an alternative

International finance problem, International Finance Problem Analyze th...

International Finance Problem Analyze the attached case, along the lines indicated by the Assignment questions listed at the end of the case.  Since you will have plenty of tim

Walter''s model, 3. The following information are related to Sun Ltd. Paid...

3. The following information are related to Sun Ltd. Paid-up equity capital ` 10,00,000 Earnings of the company ` 1,00,000 Dividend paid ` 80,000 Price - Earning rat

What is the primary assumption behind experience approach, What is the prim...

What is the primary assumption behind the experience approach to forecasting? The experience act to forecasting is based on the assumption that things will happen a certain way

Explain banks circumtances to impose compensating balances, What are compen...

What are compensating balances and why do banks require them from some customers?  Under what circumstances would banks be most likely to impose compensating balances? Compensa

Caselet, suggestion regarding credit limit. should it be approved or not wh...

suggestion regarding credit limit. should it be approved or not what should be the amount of credit limit that electronics give to booth plastics

Leverage, Evaluate d importance of leverage in a financial management of a ...

Evaluate d importance of leverage in a financial management of a small sacle business

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