Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The volatility on the returns of Suncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March:

 

CALLS

Strike/Expiry

January 22, 2016

February 19, 2016

March 18, 2016

23

0.34

0.72

0.96

24

0.13

0.41

0.69

25

0.25

0.26

0.40

 

 

PUTS

Strike/Expiry

January 22, 2016

February 19, 2016

March 18, 2016

23

1.28

2.01

2.14

24

2.63

2.80

2.92

25

3.60

3.70

3.95

 

Each option contract involves 100 shares. The risk-free rates for these three expiration dates are 0.6%, 1%, and 1.2%. All three rates are continuously compounded.   

Given the information on Suncor shares and options above, construct a protective put using the 23-put with February expiration. Hold the protective put position until expiration. 

 

 

e. What is the maximum profit and maximum loss on this protective put? 

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