Please use Excel to evaluate the following three strategies: 1) short a straddle; 2) short a strangle; 3) long a butterfly spread. The current stock price is $100, the risk- free interest rate is 4.5% p.a. (continuous compounding), and the volatility of the stock is 42%. For straddles, set the exercise price X at $100. For strangles and butterflies, please examine three sets of exercise prices: ($70, $130), ($80, $120) and ($90, $110). For instance, for the exercise prices ($80, $120), the strangle would involve shorting a put with exercise price $80 and shorting a call with exercise price $120; the butterfly would involve buying calls with exercise prices $80 and $120 and shorting two calls with exercise price $100. Please calculate the net dollar position at maturity (i.e., payoff plus the future value of either investments - in the case of butterfly - or proceeds received from selling options) for each future stock price in the range of $60 to $140 with a $4 interval (i.e., $60, $64, $68, ..., and $140). Do the calculation for three exercise price sets respectively, with each scenario presented in one spreadsheet as shown below. What insights can you derive from the results?
Please use Excel to evaluate the following three strategies: 1) short a straddle; 2) short a strangle; 3) long a butterfly spread. The current stock price is $100, the risk- free interest rate is 4.5% p.a. (continuous compounding), and the volatility of the stock is 42%. For straddles, set the exercise price X at $100. For strangles and butterflies, please examine three sets of exercise prices: ($70, $130), ($80, $120) and ($90, $110). For instance, for the exercise prices ($80, $120), the strangle would involve shorting a put with exercise price $80 and shorting a call with exercise price $120; the butterfly would involve buying calls with exercise prices $80 and $120 and shorting two calls with exercise price $100. Please calculate the net dollar position at maturity (i.e., payoff plus the future value of either investments - in the case of butterfly - or proceeds received from selling options) for each future stock price in the range of $60 to $140 with a $4 interval (i.e., $60, $64, $68, ..., and $140). Do the calculation for three exercise price sets respectively, with each scenario presented in one spreadsheet as shown below. What insights can you derive from the results?
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
Related questions
Question
Transcribed Image Text:Please use Excel to evaluate the following three strategies: 1) short a straddle;
2) short a strangle; 3) long a butterfly spread. The current stock price is $100, the risk-
free interest rate is 4.5% p.a. (continuous compounding), and the volatility of the stock is
42%. For straddles, set the exercise price X at $100. For strangles and butterflies, please
examine three sets of exercise prices: ($70, $130), ($80, $120) and ($90, $110). For
instance, for the exercise prices ($80, $120), the strangle would involve shorting a put
with exercise price $80 and shorting a call with exercise price $120; the butterfly would
involve buying calls with exercise prices $80 and $120 and shorting two calls with
exercise price $100. Please calculate the net dollar position at maturity (i.e., payoff plus
the future value of either investments - in the case of butterfly - or proceeds received
from selling options) for each future stock price in the range of $60 to $140 with a $4
interval (i.e., $60, $64, $68, ..., and $140). Do the calculation for three exercise price sets
respectively, with each scenario presented in one spreadsheet as shown below. What
insights can you derive from the results?
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education