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 the term- profit, Define the term- profit The term "profit" can ...

Define the term- profit The term "profit" can be used in two senses. As an owner-oriented concept it refers to amount and share of national income that is paid to owners of bus

Coefficient of variation evaluating risk of capital budget, Why is the coef...

Why is the coefficient of variation a better risk calculates to use than the standard deviation while evaluating the risk of capital budgeting projects? The coefficient of variat

Explain about invoice discounting, Q. Explain about Invoice discounting? ...

Q. Explain about Invoice discounting? Invoice discounting is a technique which is able to be used to raise finance against receivables. Invoice discounting works as follows:

Profit maximization-objectives of a business entity, Profit maximization ...

Profit maximization Traditionally, this was considered to be the major goal of the firm. Profit maximization refers to attaining the maximum possible profits throughout the yea

Public finance, suppose perfect competition prevails in the market for hote...

suppose perfect competition prevails in the market for hotel rooms. the current market equilibrium price of a stanar hotel room is 100 per night

Distinguish between a promissory note and a bill of exchange, QUESTION ...

QUESTION (a) "A promissory note is an instrument in writing (not being a blank or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certai

When are the financial crises occurred, When are the financial crises occur...

When are the financial crises occurred? Financial crises arise where there is a large raise in asymmetric information into financial markets. Asymmetric information arises whil

Premium, The amount by which the market price exceeds the conversion ...

The amount by which the market price exceeds the conversion value or the investment value called the premium. When expressed as a percentage, it is given by,

Cost of capital, what is the major value of the weighted cost of capital ca...

what is the major value of the weighted cost of capital calculation for the firm?

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