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. 4. What is the breakeven share price at expiration for this protective put?

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Risk A1 Q6-4

Question 6. Protective Put                                   

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.

4. What is the breakeven share price at expiration for this protective put?

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