Question
)A shark fin trade consists of the following three components: Long 2 put options at strike price X 1 Short 3 put options at strike
)A "shark fin" trade consists of the following three components:
Long 2 put options at strike price X1
Short 3 put options at strike price X2
Long 1 put option at strike price X3
Assume the options are European options on the same underlying asset, and have the same expiry date.X1 < X2 < X3.
Required:
Construct a payoff (cash flow) table for this strategy and construct a chart of the payoffs.
Why would an investor implement this trade (what are the strengths and weaknesses)?Does your answer depend on the current price of the underlying asset?
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Principles of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix
Arab World Edition
1408271583, 978-1408271582
