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

Which ratios would a banker be most interested, Which ratios would a banker...

Which ratios would a banker be most interested in when considering whether to approve an application for a short-term business loan? Explain. Bankers and another lenders use li

Why auditors need to attain audit evidence, Why auditors need to attain aud...

Why auditors need to attain audit evidence When significant fluctuations/unexpected relationshipsare identified which are inconsistent with  other  relevant  information  or  t

Find the cash flow from assets - partial income statement, Partial Income S...

Partial Income Statement Year Ending 2011 Sales Revenue                $350,000 COGS                            $140,000 Fixed Costs                     $ 43,000 SG&A E

Define the term in brief -called-up share capital, Define the term in brief...

Define the term in brief -Called-up share capital Called-up share capital that you may find in some of balance sheets. It refers to that part of subscribed capital, which share

Categorization of management risk , Categorization of management risk: ...

Categorization of management risk: Once each event has been evaluated, and been classified as to its probability and impact, the next step is to categorise those events. To do

Determine the management buy-outs, Determine the Management buy-outs ...

Determine the Management buy-outs Management buy-outs (MBOs) The management of company buy out the shareholders. Management will usually require financial backers (ventu

Valuing debt securities, Valuing Debt Securities Securities which promi...

Valuing Debt Securities Securities which promise to pay its investors a stated rate of interest and return principal amount at the maturity date are known as debt securities.

Explain how a country can run an overall balance of payments, Explain how a...

Explain how a country can run an overall balance of payments deficit or surplus. Answer:  A country can run a whole BOP (balance of payments) deficit or surplus by engaging in th

Introduction of just-in-time inventory management, Q. Introduction of just-...

Q. Introduction of just-in-time inventory management? It has already been observe that a reduction in inventory due to the introduction of just-in-time inventory management ca

Asset-backed securities, Introduction When financial assets...

Introduction When financial assets or bonds are pooled together and offered to the investors for receiving the inflow of funds from these underlying

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