What happens to delta of the portfolio

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Reference no: EM132053074

A collar is established by buying a share of stock for $62, buying a 6?month put option with exercise price $56, and writing a 6?month call option with exercise price $68. On the basis of the volatility of the stock, you calculate that for a strike price of $56 and expiration of 6 months, N(d1) = .7247, whereas for the exercise price of $68, N(d1) = 0.6564.

a. What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Collar ____ by _____

b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in your response.) Delta of the portfolio approaches $ _________

b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign in your response.) Delta of the portfolio approaches $ ________.

Reference no: EM132053074

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