Question
The answer is required in 30 min A speculator expects steep movement in the stock of TMT Ltd. from the current level of Rs 165
The answer is required in 30 min
A speculator expects steep movement in the stock of TMT Ltd. from the current level of Rs 165 in the next three months. He is not sure of the direction in which the price may take place. He wants to adopt the strategy suitable for his view. The following is the information relating to three months options on the stock of TMT Ltd.
Call Option | Put Option | ||
Strike Price (Rs.) | Premium (Rs.) | Strike Price (Rs.) | Premium (Rs.) |
162 | 7 | 162 | 1 |
165 | 4 | 165 | 3 |
168 | 2 | 168 | 5 |
The speculator believes that increase in the stock price as likely as its decrease. (a) Frame the STRADDLE strategy the speculator may adopt in that situation. (b) Calculate the maximum profit, maximum loss and breakeven under the strategy and draw the pay-off diagram. (c) Show the pay-off profile if stock varies between Rs 155 and Rs 175.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started