23. A collar is established by buying a share of stock for $50, buying a 6-month put...

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23. A collar is established by buying a share of stock for $50, buying a 6-month put option with exercise price $45, and writing a 6-month call option with exercise price $55. Based on the volatility of the stock, you calculate that for a strike price of $45 and expiration of 6 months, N(d1) = .60, whereas for the exercise price of $55, N(d1) = .35.

a. What will be the gain or loss on the collar if the stock price increases by $1?

b. What happens to the delta of the portfolio if the stock price becomes very large? Very small?

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Investments

ISBN: 9780077261450

8th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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