Create a straddle by buying

Assignment Help Finance Basics

Reference no: EM13260407

Assume it is June, 2010 and you are awaiting clarity on BP's fundamentals. As an investor, you are looking at options scenarios given the unpredictable oil spill crisis and associated firm specific risk (unsystematic risk). BP's closing price on June 8, 2010 was 34.67. Using the option prices shown below for the underlying security (BP), do the following:

Focus on the October 2010 35 call. Suppose you bought this call at the price indicated. How high must BP's stock price rise to at expiration to break even on this option?
Now look at the October 2010 35 put. Suppose you bought this put at the price indicated. How low must BP's price fall to at expiration to break even on this option?
Assume you just bought 100 shares of BP stock (at $35 per share). Use the October 35 put to develop a protective put strategy. What is your total return on the entire investment if the stock price falls to $25? What is your total return if the price rises to $45?
Assume you just bought 100 shares of BP stock (at $35 per share). Use the October 35 call to write covered calls. What is your total return if the stock price falls to $25? What is your total return if the price rises to $45?
Create a straddle by buying the October 35 call and the October 35 put. What's the maximum loss for this position and what stock price will produce it? Where will you break even? Why would an investor establish a position like this?
Now assume you own 100 shares of the stock your group has selected to present for the stock research project. Use December options to develop a protective put strategy. If the company does not have December options, use November or January options. Select the put with a strike price nearest to your company's trading price. What will your total return be if your stock price falls to 0? What if the stock price rises 100%?

Reference no: EM13260407

Questions Cloud

What is the average power pavg of such a nuclear bomb : A fission-based nuclear bomb (such as those used in World War II) uses the same nuclear reactions, What is the average power Pavg of such a nuclear bomb

Employee supports improved internal processes : Explain how the Voice of the Employee supports improved internal processes (Voice of the Business), and how the Voice of the Businesssupports customer satisfac tion (Voice of the customers?

State what happens to the pressure inside a closed container : What happens to the pressure inside a closed container if the number of moles inside the container is increased while the temperature is maintained constant

What will a share of stock sell for today : If the required return on Storico stock is 13 percent, what will a share of stock sell for today?

Create a straddle by buying : Create a straddle by buying the October 35 call and the October 35 put. What's the maximum loss for this position and what stock price will produce it? Where will you break even? Why would an investor establish a position like this?

Compared to plurality voting : Do you think that instant runoff voting would increase or decrease the viability of a third party when compared to plurality voting?

Compute the orbital radius of the proton : a proton moves in a circle with a speed of 280 m/s through a uniform magnetic field of 2t directed perpendicular to the circular path. compute the orbital radius of the proton

The sodium hydroxide solution exactly neutralized a solution : 32.00 mL of a 0.2500 M sodium hydroxide solution exactly neutralized a solution containing 0.5000 grams of a soluble solid acid that yields two moles of hydrogen ions per mole of acid when dissolved. Calculate the molar mass of the acid.

Lot of ads use humor to sell their products : You may notice that some ads are very loud, contain a lot of bright colors, and are full of action; other ads, however, may be simple and quiet.

User Account

All Pages