Question
An Investor is said to take a position in a collar' if she buys the asset, buys an out-of-the-money put option on the asset, and
An Investor is said to take a position in a "collar' if she buys the asset, buys an out-of-the-money put option on the asset, and sell an out-of-the-money call option on the asset. The two options should have the same time to expiration.
Suppose you wish to purchase a collar on Company A, a non-dividend-paying stock, with six months until expiration.
You would like the put to have a strike price of $55 and the call to have a strike price of $95.
The current price of the Company A stock is $70 per square.
You can borrow and lend at the risk-free rate of 7% per annum, and the annual standard deviation of the stock's return is 50%.
What is the price of the put options? (2-decimal points)answ 2.65
What is the price of the Call option?answ 3.59
What is the total cost of the collar?answ 69.09
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