1.Describe what your strategy is and draw the payoff graph (Hint: think of a strategy we learned in class). 2.Calculate your returns when TSLA price rises to (i) $350 (ii) $230; 3. What are the break-even prices of this strategy?
1.Describe what your strategy is and draw the payoff graph (Hint: think of a strategy we learned in class). 2.Calculate your returns when TSLA price rises to (i) $350 (ii) $230; 3. What are the break-even prices of this strategy?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:The stock price of Tesla (TSLA) is trading at $290 per share in the beginning of Jan
2023. You heard that TSLA intend to build plants which will cost $10 billion in Mexico. Yet
the plan has not been formally approved by the government of Mexico but the result will
be known 3 months later. If the plan is approved, it will cause a large rise of TSLA's price
(likely $300-$370). However, if the plan is rejected, it is likely that TSLA's price will slump
largely (likely $210-$260) due to the huge sunk cost in the preparation stage. Suppose
there are following European equity options (with 3-month maturity from now) available in
the market. Design an option strategy which is likely to utilize this opportunity.
Option Type
TSLA March 340 Call
TSLA March 290 Call
TSLA March 240 Call
TSLA March 340 Put
TSLA March 290 Put
TSLA March 240 Put
Strike Price
$340
$290
$240
$340
$290
$240
Price
1.Describe what your strategy is and draw the payoff graph (Hint: think of a strategy we
learned in class).
2.Calculate your returns when TSLA price rises to (i) $350 (ii) $230;
3. What are the break-even prices of this strategy?
$10.3
$22.7
$31.2
$29.4
$21.3
$9.9
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