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 deadweight loss, What is meant by deadweight loss?  Why does a price...

What is meant by deadweight loss?  Why does a price ceiling usually result in a deadweight loss? Deadweight loss considers to the benefits lost to either consumers or producers

External financing with same cost of capital, External Financing with Same ...

External Financing with Same Cost of Capital and Same Proportions as Existing: If a firm raises new capital funds in the same proportion as at present and at the same specific cos

Are there any ways to analyze and value seasonal businesses, Are there any ...

Are there any ways to analyze and value seasonal businesses? Seasonal businesses can be valued by discounting flows using annual data, but this needs some adjustments. The righ

Financial Management, Financial Management Initial Disclosures During the ...

Financial Management Initial Disclosures During the process of discussion and negotiation with the client with regard to the financial affairs and the manner of operations of the

Operational cycle, using the operating cycle and any other financial manage...

using the operating cycle and any other financial management knoweledge,dicuss the applicability of such a cycle to the poultry biussiness in uganda (consider broilers)

How do tax considerations affect the cost of debt, How do tax consideration...

How do tax considerations affect the cost of debt and the cost of equity? For the reason that interest on debt is tax deductible to the issuing firm, the higher the tax rate th

Enumerate the potential drawbacks of divestment, Potential drawbacks of div...

Potential drawbacks of divestment - There may be some loss of economies of scale. Fixed overheads would have a lower capacity to recover them. - Cash generated may not be

What is the purpose of the small business administration, 1. Discuss and de...

1. Discuss and describe in your own words the five Cs of credit analysis. 2. Why is it difficult for an entrepreneur to finance a startup with debt? What are the dangers of cre

Total cost of operating the business, Joe's ice cream stroe has to decide w...

Joe's ice cream stroe has to decide whether to shut down this winter or stay open. His projected revenue is $1,200 per week. He has fixed costs (Mortgage, taxes, insurance, etc.) t

Calculate the ex-right stock price, DIY Inc. plans to raise $200,000 with a...

DIY Inc. plans to raise $200,000 with a right offering. The current stock price is $100 and there are 80,000 shares outstanding. a. If DIY sets the subscription price to be $80

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