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

Define arbitrage process, Q. Define Arbitrage Process ? The basic theor...

Q. Define Arbitrage Process ? The basic theory of the MM approach if we ignore the taxes is that the total value of a firm should be constant irrespective of the degree of leve

Operating and financial leverage, explain the significance of operating lev...

explain the significance of operating leverage and financial with the help of example?

Outline the objectives of alm, You are a member of the ALM Committee (ALCO)...

You are a member of the ALM Committee (ALCO) of ANZ Bank. A visiting member has some queries relating to the general framework of the ALM and interest rate risk impact on the incom

Venture capital and private equity, It is argued that VC & PE houses achiev...

It is argued that VC & PE houses achieve superior returns through ruthlessly focussing management on short to medium term outcomes. In particular, parsimonious cash management is g

Cash management control, I need a report on the topic Cash Management Contr...

I need a report on the topic Cash Management Control. Can you please assist me for Cash Management Control report for about 2500 words?

Rate of the growth of the business, Q. Rate of the growth of the business? ...

Q. Rate of the growth of the business? The working capital requirement of the a concern increase with the growth and expansion of the business activity although it is difficu

The visitors perceive to justify the renovation, Lincoln Park Zoo in Chicag...

Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of $1,800,000. Addition of new species will cost another $310,000. Addi

Calculate the minimum price sell for in a rational market, Suppose spot Swi...

Suppose spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950.  What is the minimum price which a six-month American call option along with a striking price of $0.6

Employee benefit plan, Employee Benefit Plan - Compensation arrangement, u...

Employee Benefit Plan - Compensation arrangement, usually in writing, used by employers in addition to wages or salary. Some plans like group term life insurance, medical insuranc

Performance evaluation, Performance evaluation One can determine this b...

Performance evaluation One can determine this by comparing the cash flow from assets and cost of capital. 1. Cash flow from assets Cash flow from assets is calculated

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