You were expecting the market to correct for the last couple of months and see that...

You were expecting the market to correct for the last couple of months and see that it is happening over the last few weeks. You are expecting to receive $20,000 from an external source that you are planning to buy the SPDR ETF next month but would not want to miss out on the current price levels (in case the S&P 500 levels go up). Explain how you will lock in the current levels using options. Use today’s price on the SPY and give an estimate of the cost to do so?

Solutions

Expert Solution

Ans :

In order to Lock the current levels of SPY i.e. $323.75, the best strategy would be buying the In the money call option of $323 of Next month Expiry i.e. Oct-20 which is available at $13.47. these will give us Right to Buy SPY in case the price of SPY goes up from current price.

Total cost of locking current price would be $13.47 i.e. premium amount which we have to pay for buying call option.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You are expecting to receive an inheritance in 6 months and wish to use a long...

You are expecting to receive an inheritance in 6 months and wish to use a long position in a forward contract to pre-invest the proceeds. A dealer offers a forward contract for 1,000 shares of Gargantuan Industries. The current price of Gargantuan is $89 per share and Gargantuan is expected to pay dividends per share over the next 6 months with a present value of $4.56 per share. If the risk-free rate is 3.80% compounded annually, what is the no-arbitrage...

As you showed on the last exam, an experiment at U of Arkansas a couple of...

As you showed on the last exam, an experiment at U of Arkansas a couple of years ago showed that the genes for CHF and RA are linked by a distance of 10.2 cM in pigs. In order to test the linkage relationship obtained by the U of Arkansas team, a U of Missouri biology team repeated the experiment making exactly the same cross, but using independently obtained pigs. Healthy pigs: 255 CHF: 40 RA: 44 Both CHF & RA:...

A firm is expecting to receive $80M in 6 months and wishes to invest it for...

A firm is expecting to receive $80M in 6 months and wishes to invest it for another 6 months. But the firm is worried about a potential decline in interest rates. Because of their flexibility, the firm decides to use call options on the 6-month T-bill. A call option on the 6-month T-bill with 6-month maturity exists with strike $95.8 (per $100 face value) and $0.34 premium. The current price of the 6-month T-bill is $96.92 per 100 face value....

QUESTION E The sales of a factory, manufacturing bicyles, over the last 24 months were as...

QUESTION E The sales of a factory, manufacturing bicyles, over the last 24 months were as follows: MONTH UNITS SOLD 1 1140 2 1180 3 1130 4 1180 5 1110 6 1200 7 1280 8 1340 9 1340 10 1240 11 1140 12 1230 13 1440 14 1530 15 1560 16 1350 17 1350 18 1420 19 1530 20 1530 21 1430 22 1430 23 1490 24 1570 It is obvious that the monthly sales are increasing, but it is...

Twelve batteries were tested to see how many hours they would last. The frequency is Hours...

Twelve batteries were tested to see how many hours they would last. The frequency is Hours Frequency (f) Midpoint (Xm) f*Xm C f (X - X̅ )² f (X - X̅ )² 1-3 1 1+3/2 = 4/2 = 2 1x2 = 2 1 27.5625 27.5625 4-6 4 4+6/2= 10/2= 5 4x5 = 20 1+4 = 5 5.0625 20.25 7-9 5 7+9/2 = 16/2 = 8 5x8 = 40 1+4+5 = 10 0.5625 2.8125 10-12 1 10+12 = 22/2 = 11...

Discuss the overlap that you see in these last four GRASP patterns. Or, if you don't...

Discuss the overlap that you see in these last four GRASP patterns. Or, if you don't see overlap, then describe how they are different. - Polymorphissm - indirection - Pure Fabrication - Protected Variations

Set up - You were hired in the role of accounting lead a couple of years...

Set up - You were hired in the role of accounting lead a couple of years ago by a privately held company. You report directly to the CEO. The company sells its products through a dealer distribution network. Revenue is booked at the time shipment occurs. Under standard practice, revenue will be booked as of the last day of the month if the shipment will occur within 1 or 2 days of the new month. On occasion, revenue may be...

12) Can you please see that the calculations are correct, this is my 3rd try with...

12) Can you please see that the calculations are correct, this is my 3rd try with this same question and I've paid for every attempt. Thank you. A bicycle manufacturer currently produces 349,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production...

List a few things you would see, that you cannot see now, if your sense of vision were "better."

Click to Launch Class, As you learned this week, human beings do not have the most sensitive or acute sensory systems in the animal world. Some bats can hear frequencies that exceed 100,000 Hertz, dolphins receive auditory messages from great distances, and cats can probably localize sounds better than we do because they can rotate their ears. Rats see better at night than we can, eagles have more acute distance vision, and horses have a wider visual field. Rabbits have more taste...

Select the correct answer. Angela meets with a new couple to determine their needs for a...

Select the correct answer. Angela meets with a new couple to determine their needs for a new home and how large a home they can afford. What is Angela’s profession? A. financial services sales agent B. insurance sales agent C. real estate broker D. tax accountant E. personal finance manager

Subjects