Question

In: Finance

You would like to buy a share of stock of Honkers Corp, currently trading at $50....

You would like to buy a share of stock of Honkers Corp, currently trading at $50. However, you are concerned that the value of this stock may decline. You notice an at-the-money put option on this stock trading at $4.

Design a protective put strategy. Please fill out the following table.

Stock price on the expiration day

S = 30

S = 40

S = 50

S = 60

S = 70

Stock value at expiration

Put value at expiration

Total value of the hedged position

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

You have been watching a stock which is currently trading at RM50 per share. You would like to buy the stock if it were a little less expensive, at RM47 per share.
You have been watching a stock which is currently trading at RM50 per share. You would like to buy the stock if it were a little less expensive, at RM47 per share. You believe that the stock price will go to RM70 by year-end, and then level off or decline. You decide to place a limit order to buy 100 shares of the stock at RM47, and a limit order to sell it at RM70. It turns out that you...
You are bullish on BL stock. It is currently trading at $50 per share. You have...
You are bullish on BL stock. It is currently trading at $50 per share. You have $6,000 and want to invest as much as possible into this stock. The initial margin requirement for the stock is 40% and the maintenance margin is 25%. The broker charges 5% on borrowed margin funds. A) How many shares can you purchase, if you utilize your margin account fully? B) Suppose in exactly one year, the stock is now trading at $70 and you...
a. Assume that you would like to buy 100 shares of a stock that is currently...
a. Assume that you would like to buy 100 shares of a stock that is currently priced at $ 70. The initial margin is 75% and maintenance margin is 35%. How much would the total purchase amount to in dollars. How much in total cash of your own do you need in dollars in this example? How much will you be able to borrow in dollars in this example? b. Show your total dollar amount of investment and your results...
MetLife, Inc. stock is currently trading at $50 per share. The price of MetLife stock can...
MetLife, Inc. stock is currently trading at $50 per share. The price of MetLife stock can either increase by 20% or decrease by 20% each year. The probability of an increase is equal to the probability of a decrease (). The risk-free rate of return is 10% per year. What is the current equilibrium price (premium) of a 1-year European call option on MetLife with a strike price of $50?
MetLife, Inc. stock is currently trading at $50 per share. The price of MetLife stock can...
MetLife, Inc. stock is currently trading at $50 per share. The price of MetLife stock can either increase by 20% or decrease by 20% each year. The probability of an increase is equal to the probability of a decrease (pu=pd= 0.5). The risk-free rate of return is 10% per year. What is the current equilibrium price (premium) of a 1-year European call option on MetLife with a strike price of $50?
Devon Energy stock is currently trading at $15 per share. You expect the stock to increase...
Devon Energy stock is currently trading at $15 per share. You expect the stock to increase to $35 in the next 6 months. If you choose to speculate on your belief, which of the following positions will provide the greatest profit if you hold it for the entire 6 months A long 6-month futures contract trading at $15.15 A long put option expiring in 6 months with a strike price of 15 and a put premium of $1.15 A long...
Assume that you will buy stock on margin (i.e.; stock margin trading).  Assume that Texas Instruments Corp...
Assume that you will buy stock on margin (i.e.; stock margin trading).  Assume that Texas Instruments Corp stock is currently selling for $50 per share.  Assume that you will purchase 500 shares on July 29, 2002 at 11:00 AM. You have $15,000 of your own to invest and you will borrow an additional $10,000 from your broker at an interest rate of 10% per year.  Assume that the Maintenance Margin is 40%. 17)  Which of the following presents the balance sheet if the stock...
If Harley Davidson stock is trading for $25/share and you want to buy 100 shares in...
If Harley Davidson stock is trading for $25/share and you want to buy 100 shares in your brokerage account which has an initial margin requirement of 50%, what dollar amount will the stock purchase cost you? Select one: a. $25 b. $1,250 c. $2,500 d. $5,000 Clear my choice Question 3 Refer again to question 2 (see below) supposing that you bought the Harley Davidson (HOG) stock on margin and then sold it for $30/share. What would be your return...
DEF Corp is currently trading at $38/share. Consider an option trading strategy consisting of: 1. A...
DEF Corp is currently trading at $38/share. Consider an option trading strategy consisting of: 1. A long European call on DEF with a strike price of $50, trading at $3.50 2. A long European put on DEF with strike price of $40, trading at $5 a) What are the intrinsic and time value of the call and put? b) Draw a profit diagram for each option as well as the overall strategy (neat and labelled) c) Construct the payoff table...
Currently Zebe Corporation stock is trading at a price of $50. You are considering two options...
Currently Zebe Corporation stock is trading at a price of $50. You are considering two options that expire in January 2019. a. As a function of Zebe Corp’s stock price at expiration, draw a payoff diagram for a call option with a strike price of $60. b. As a function of Zebe Corp’s stock price at expiration, draw a payoff diagram for a put option with a strike price of $60.   c. Suppose the call option in (a) trades at...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT