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

Regulation of mergers and acquisitions, Regulation of Mergers and acquisiti...

Regulation of Mergers and acquisitions Mergers and acquisitions are regulated by: Competition commission If office of fair trading thinks that merg

Cash flow matching, Cash flow matching strategy is used to build a ...

Cash flow matching strategy is used to build a bond portfolio wherein the cash flows of the bond portfolio exactly match a stream of liabilities. The most s

Procurement, What is the explanation for leaset cost selection

What is the explanation for leaset cost selection

Determination of explicit cost of capital, Determination of explicit cost o...

Determination of explicit cost of capital Approach of determination of explicit cost of capital is similar to the one used to ascertain IRR, with one difference, in case of co

Ratio analysis and company valuation, As an investment advisor, you have be...

As an investment advisor, you have been approached by a group of professional investors (probably who already have a well-diversified portfolio). They are considering investing in

Caselet, Suggestion regarding credit limit. should it be approved or not, w...

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

Explain the significance of financial analysis, Question 1 What are the li...

Question 1 What are the limitations of management accounting? Question 2 Explain the significance of financial analysis Question 3 What are the advantages of the value a

Case, Which type of financing is appropriate to each firm?

Which type of financing is appropriate to each firm?

Risk of the complete portfolio, (a) Presume we have a portfolio of n name...

(a) Presume we have a portfolio of n names with some default correlation ρ . The risk of the complete portfolio moves according to the change in default correlation. Alternative

American stock exchange - amex, It is the third-largest stock exchange by t...

It is the third-largest stock exchange by trading size in the United States. In 2008 it was get hold by the NYSE Euronext and turn into the NYSE Amex Equities in 2009. The AMEX is

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