You are the financial manager of a construction company that wants to reduce the volatility of its cash flows by making its cash flows less sensitive to changes in the price of concrete. It will do so by buying a call option on the Invesco Materials ETF with a strike price of $65 and buying a put option on the ETF with a strike price of $55. Both options are European and expire in 3 months. This option strategy protects you from ___ . Suppose 3 months from now the materials ETF trades at $50. What is the payoff of this option strategy? Suppose we replace all the options with identical European options that expire in 1 year. We would expect that the cost of this new option portfolio to be ___

Q: What happens if you sell short calls and they become deep in-the-money?   A. You risk being…

A: Call options are types of option contract which will provide with right to buy an underlying…

Q: If you sell a put option contract on Exxon, with the most heavily traded strike price today.  What…

A: Solution:- Derivative is a financial contract which derives its value from an underlying asset,…

Q: Suppose a Japanese company, Matsushita, has to sell Can$ 50 m sometime during the next 6 months, and…

A: Put options is derivative product that gives the option to sell the currency at the given rate but…

Q: Sell Disney Stock "Short"

A: Stock refers to a type of security that shows the fractional relationship in the company. It is used…

Q: You work in a derivatives section in an investment bank. In August, a customer who holds Texa stock…

A: Put option:- It gives an selling right to an holder not an obligation. to sell a security at a…

Q: You buy an American call option priced at $0.025/€ on €225,000 at a strike price of $1.50/€. You…

A: In case of call option , option will be exercised if stock price is more than or equal to the strike…

Q: Dimi regrets that he didn’t buy stocks. He thinks it would be better to buy a stock of Air…

A: We have to create a portfolio of long stock and short call. We need to find the payoff for a range…

Q: Straddle involves buying a European call and put with the same strike price and expiration date. A…

A: A straddle is an options trading strategy involving the simultaneous purchase of both a call option…

Q: The value derived from exercising an option immediately is the exercise value. No rational investor…

A: Derivative securities are instruments that derive their value from the underlying securities. These…

Q: You hold a European put option on Italian Firm Spaghetti SPA. with a strike price of €100. Things…

A: Stock Price €                                                                          2.00…

Q: Consider a call option on a stock, ABC Corp. with a price of $74.20 and a strike price of $85.88.…

A: Call option is the derivative product and gives the opportunity to buy stock on the expiration but…

Q: To hedge, a user of an energy resource wants price protection from rising prices. The user decides…

A: Options are the derivative instrument that can be used by the investors to hedge their risk of loss.…

Q: The exotic option with payoff max[average(St)-K, 0], where t belongs in time interval [0, T], is an…

A: Exotic option is different from regular option like plain vanilla option. These options are…

Q: (Ⓒ) Suppose that the • Stock price of a stock is $59. Risk - free interest rate is 10% per annum •…

A: To determine if an arbitrage opportunity exists, we can compare the cost of creating a synthetic…

Q: Which of the following is not consistent with Prospect Theory decision making, If a suit and tie…

A: Prospect Theory, suggests that people's decision-making is influenced by how potential outcomes are…

Q: You recently found out that when the market is in recession, ALL assets seem to suffer from some…

A: Part (a): Answer: Liquidity risk is a critical measure used to calculate efforts to turn a security…

Q: A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3.…

A: Options are market securities which can be purchased or sold in anticipation of the movement of the…

Q: Your friend is planning to sell IBM stock in 30 days who believes that IBM's price will be very…

A: In this question, we are required to determine the action to be taken by the friend to protect…

Q: If the manager of a gold mine wants to protect its operations against a market price decline, while…

A: It is a financial instrument whose value/price is determined by the given assets. Options, forwards,…

Q: ange Corporation has just made a Euro bid on a project located in Fra ere will be a 15% signing…

A: There is a need for protection against exposure to international currency otherwise there is the…

Q: Which of the below statements is false about real options?  A. Real options increase firm value…

A: Real options are also such options which will be providing various types of opportunities for…

Q: A put option in finance allows you to sell a share of stock at a given price in the future. There…

A: Put options are exercised when the market share price is less than the Put price, in which the loss…

Q: You are an options dealer who deals in non-publicly traded options. One of your clients wants to…

A: To ensure a profit, let's consider the strategy you can employ in this scenario:Buy the put option…

Q: None

A: When you invest in a company like Nestle, which is based in a different country, the money you make…

Q: Given the following data, show the profit from a strategy involving a straddle for the put, call and…

A: This option holder will buy a call option and a put option on a stock simultaneously. Call option…

Q: compare or contrast forwards and options:

A: Options are the financial derivatives used to cover up the risks in the derivatives market. in an…

Q: December call and put options. The call option has a strike price of $50 and the put option has a…

A: A short strangle is an option strategy that consists of selling out of the money call option and put…

Q: Determine the impact on earnings of the above hedges for the first and second 30-day period.…

A: In the given scenario, we should calculate the impact of the hedges for the first and second 30-day…

Q: Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least…

A: Characteristics of a call option on a particular stock have been provided. There are several…

Q: Suppose a financial manager buys call options on 50,000 barrels of oil with an exercise price of $88…

A: The call options give the manager the right (but not the obligation) to purchase oil futures…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.