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

Historical differences in equity securities, Public Bourses The origin ...

Public Bourses The origin of this type of bourses can be found in the legislative work of Napoleon. These type of bourses are regulated by the government, brokers are appointed

Report on liquidity and financing, Extent of Financing Required It is ...

Extent of Financing Required It is clear that sales are unsure with low, high and medium estimates of demand. This of itself gives a few uncertainty but the reliability and pr

Create a data entry and balance sheet, The ledger of AISExperts Inc. showed...

The ledger of AISExperts Inc. showed the following balances after adjustment , but before closing, on December 31, 2012, the end of the current year: Accounts payab

Steps in budgetary control, STEPS IN BUDGETARY CONTROL 1. Quantificati...

STEPS IN BUDGETARY CONTROL 1. Quantification of plans in relation to sales, production, distribution and finance in terms of objectives and goals set by the management. That i

Shareholder value, SHAREHOLDER VALUE There are various measures used by...

SHAREHOLDER VALUE There are various measures used by market analysts and financial experts to derive the maximum Shareholder Value of a particular company but we would take the

Define the term- cash purchases, Define the term- Cash purchases     Shar...

Define the term- Cash purchases     Shareholders of the target company are bought out completely and have no further stake in business. This is good if predator shareholders want

Financial Analysis of Carrefour & Tesco Supermarkets, comparative analysis ...

comparative analysis on these two food retailing giants

What is the rationale of the double-play strategy, Q. What is the rationale...

Q. What is the rationale of the double-play strategy? The hedge funds deploy a double-play strategy in order to engineer steep increases in interest rates and steep declines in

Exchange requirements-, Exchange Requirements To ensure money supply, s...

Exchange Requirements To ensure money supply, some central banks require some or all of its foreign exchange receipts (generally from exports) be exchanged for the local curren

#title., how can management use financial ratios

how can management use financial ratios

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