Question 10 You are given the following data on call and put premiums in pence per share for Company ABC shares which are currently priced in the market at 315 pence. Each contract refers to 1000 shares. Call premiums in pence Put premiums in pence Strike Prices September September 300 pence 45 35 (i) You expect the share price to rise to 400 pence. Discuss a speculative strategy and the profits/losses at a range of different prices for the underlying share in September. (ii) You are unsure if the share price will either fall or rise so decide to adopt a long straddle strategy. Discuss the total net profit (+) or net loss (-) in pounds of the strategy at the following share prices on expiration of the contract. (a) 150 pence (b) 250 pence (c) 350 pence (d) 500 pence (iii) State all share prices on expiration that will lead to zero profits from this strategy.
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Question 10
You are given the following data on call and put premiums in pence per share for Company ABC shares which are currently priced in the market at 315 pence. Each contract refers to 1000 shares.
|
Call premiums in pence |
Put premiums in pence |
||
|
Strike Prices |
September |
September |
|
|
300 pence |
45 |
35 |
(i) You expect the share price to rise to 400 pence. Discuss a speculative strategy and the profits/losses at a range of different prices for the underlying share in September.
(ii) You are unsure if the share price will either fall or rise so decide to adopt a long straddle strategy. Discuss the total net profit (+) or net loss (-) in pounds of the strategy at the following share prices on expiration of the contract.
(a) 150 pence
(b) 250 pence
(c) 350 pence
(d) 500 pence
(iii) State all share prices on expiration that will lead to zero profits from this strategy.
