A collar is established by buying a share of stock for $50, buying a six-month put option with exercise price $45, and writing a six-month call option with exercise price $55. Based on the volatility of the stock, you calculate that for an exercise price of $45 and maturity of six 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?
c. Very small?

Question

22-06-2024
Business

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A collar is established by buying a share of stock for $50, buying a six-month put option with exercise price $45, and writing a six-month call option with exercise price $55. Based on the volatility of the stock, you calculate that for an exercise price of $45 and maturity of six 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?
c. Very small?

Sagot :

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