Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings for industrial companies that use

image text in transcribed

You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.47. You decide to buy a put option (for 100 shares) with a strike price of $33.50, priced at $2.28. What is your profit if you are wrong and the price of XLB increases to $35.50 on the expiration date? (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) QLT: Materials$32.47 Strike $31.00 $33.50 Calls Expiration November November Price $1.22 $1.22 Strike $31.00 $33.50 Puts Expiration November November Price $2.57 $2.28 You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.47. You decide to buy a put option (for 100 shares) with a strike price of $33.50, priced at $2.28. What is your profit if you are wrong and the price of XLB increases to $35.50 on the expiration date? (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) QLT: Materials$32.47 Strike $31.00 $33.50 Calls Expiration November November Price $1.22 $1.22 Strike $31.00 $33.50 Puts Expiration November November Price $2.57 $2.28

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Financial Risk Management Enterprise Wide Risk Management In Theory And Practice

Authors: Donald Van Deventer, Kenji Imai, Mark Mesler

3rd Edition

1547416157, 9781547416158

More Books

Students also viewed these Finance questions

Question

5 What does it mean to think of an organisation as an open system?

Answered: 1 week ago