Collar, Financial Management

Assignment Help:

Collar

A collar can be established by holding a share, along with purchasing a protective put and writing a covered call, where both options at out-of-money..

For Example - ONGC

Underlying stock = Rs. 809

Buy Mar Rs. 800 Put @ Rs.16

Write Mar Rs. 880 Call @ Rs.7.25

 

Total price for this strategy = 809 + 16 + 7.25 = Rs. 832.25

 

Maximum Profit: Limited

Call strike - Initial spot price - Put Premium = 880 - 809 - 16 = Rs. 55

Maximum Loss: Limited

Initial spot price - Put strike + Call Premium = 809 - 800 + 7.25 = Rs. 16.25

So an arbitrage opportunity to the tune of Rs. 55 (max) is available if the price target of Rs. 880 or beyond is achieved. On the flip side, we have losses, which are capped at a maximum of Rs 16.25 for price Rs. 800 and below.


Related Discussions:- Collar

Analysis of capitalization, You must analyze how the company is financed th...

You must analyze how the company is financed through equity and debt financing. You will discuss the level of leverage and how it compares to similar companies in the Industry.

Cyclical variation in time series analysis, Cyclical Variation By cycli...

Cyclical Variation By cyclical variations, we refer to the long-term movement of the variable about the trend line. Therefore, does the movement of the actual series about a tr

Define depreciation expense, Define depreciation expense as it appears on t...

Define depreciation expense as it appears on the income statement. How does depreciation affect cash flow? The term accounting depreciation is the allocation of an asset's init

Brigham, how do legal consideration affect a firms credit policy

how do legal consideration affect a firms credit policy

Share price movements, The management of Nelson plc wish to estimate their ...

The management of Nelson plc wish to estimate their firm's equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it would

Leverage, Evaluate d importance of leverage in a financial management of a ...

Evaluate d importance of leverage in a financial management of a small sacle business

Describe the types of financial ratios, 1. Describe the types of financial ...

1. Describe the types of financial ratios and other financial performance measures that are used during a venture's successful life cycle. Who are the users of financial performan

Analysis of company position, Analysis of Company Position Associated ...

Analysis of Company Position Associated International Supplies Ltd Circulation: Associated International Supplies Ltd (AIS Ltd.) Author: A. Consultant, AXY Consultin

Sensitivity analysis, A division of Saron plc is considering introducing a ...

A division of Saron plc is considering introducing a new product.  The product is the result of work undertaken by the division's research and development department - the expendit

IFM, 38. The optimum capital structure is the one with i) highest value of ...

38. The optimum capital structure is the one with i) highest value of the firm ii) Lowest value of the firm iii) highest shares in numbers iv) highest debt

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