RISK 7-2 Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The volatility on the returns of Suncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March: CALLS Strike/Expiry January 22, 2016 February 19, 2016 March 18, 2016 23 0.34 0.72 0.96 24 0.13 0.41 0.69 25 0.25 0.26 0.40 PUTS Strike/Expiry January 22, 2016 February 19, 2016 March 18, 2016 23 1.28 2.01 2.14 24 2.63 2.80 2.92 25 3.60 3.70 3.95 Each option contract involves 100 shares. The risk-free rates for these three expiration dates are 0.6%, 1%, and 1.2%. All three rates are continuously compounded. Given the information on Suncor shares and options above, construct a protective put using the 23-put with February expiration. Hold the protective put position until expiration. Construct a profitable riskless arbitrage opportunity using this box-spread, with the requirement of $0 investment today. Calculate the NPV of the riskless profit.
RISK 7-2
Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The volatility on the returns of Suncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March:
|
|
CALLS |
||
|
Strike/Expiry |
January 22, 2016 |
February 19, 2016 |
March 18, 2016 |
|
23 |
0.34 |
0.72 |
0.96 |
|
24 |
0.13 |
0.41 |
0.69 |
|
25 |
0.25 |
0.26 |
0.40 |
|
|
PUTS |
||
|
Strike/Expiry |
January 22, 2016 |
February 19, 2016 |
March 18, 2016 |
|
23 |
1.28 |
2.01 |
2.14 |
|
24 |
2.63 |
2.80 |
2.92 |
|
25 |
3.60 |
3.70 |
3.95 |
Each option contract involves 100 shares. The risk-free rates for these three expiration dates are 0.6%, 1%, and 1.2%. All three rates are continuously compounded.
Given the information on Suncor shares and options above, construct a protective put using the 23-put with February expiration. Hold the protective put position until expiration.
- Construct a profitable riskless arbitrage opportunity using this box-spread, with the requirement of $0 investment today. Calculate the
NPV of the riskless profit.
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