Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 20, Problem 9PS

a.

Summary Introduction

  1. To analyze: The approach best suitable to meet the client’s objective which gives a good option of larger gains or losses between now and at the end of the year. (i) Long straddle
  2. (ii)Long bullish spread (iii) Short straddle

Introduction:

Long straddle: It is one of the option strategies. It is supposed to be a combination of buying both call options and put options at the same strike or exercise price and with the same expiry period. When both these options are combined, they release in producing a position which depicts profit in both the case of an increase or decrease in stock prices.

b.

Summary Introduction

  1. To analyze: The approach best suitable to meet the client’s objective which gives a good option of larger losses between now and at the end of the year. (i) Long put options
  2. (ii)Short call options (iii)Long call options.

Introduction:

Long put position: It is one of the options' strategies and suits best in a situation where investor purchases put options with a strong belief that the price of the underlying stock or asset will definitely decrease in future and will result to be less than the strike price before the expiry of the contract period.

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