- Solve Q5 And Q6 With Notations Numbers Are Not Accepted Q 5 Your Broker Calls You And Informs You That The Price Of 1 (141.79 KiB) Viewed 39 times
- Solve Q5 And Q6 With Notations Numbers Are Not Accepted Q 5 Your Broker Calls You And Informs You That The Price Of 2 (168.03 KiB) Viewed 39 times
Solve Q5. and Q6. with notations. Numbers are not accepted. Q.5 Your broker calls you and informs you that the price of stock BBM is expected to Decline. Thus, you decide buy the at-the money put with expiration date T. 5.1 Show the complete table of cash flows and the P/L at T of your strategy: long at-the money put 5.2 Draw the graph of the P/L at expiration of the strategy in 5.1
Q6. Your broker explains to you that the options on BBM are European and that BBM does not pay dividends. Thus, instead of the long put in Q5. your broker suggests the following strategy: Buy the at-the money call with the same K and T as the put from Q5. Simultaneously, sell BBM stock short, and invest the proceeds from the short sale of BBM stock in Treasury bills. These T-bills guarantee an interest of $1 at the call's expiration. Show the complete table of cash flows and the P/L at expiration of the strategy suggested by your broker. No graph.