Financial DerivativesTU Board 2021
Currently the price of Chandragiri Hills stock is 2,500. You want to invest on this stock but you are not sure that whether the price of stock will increase or it will decrease in 6 months.…
5Currently the price of Chandragiri Hills stock is 2,500. You want to invest on this stock but you are not sure that whether the price of stock will increase or it will decrease in 6 months. Therefore, you want to make protective put. The put options with Rs 2,500 exercise price on Chandragiri stock are currently selling for Rs 500.
a. How can you make protective put? b. What is the cost of protective put to you? c. At what stock price in 6 month will you breakeven? d. Calculate the gain/loss from protective put in 6 months if stock price of Chandragiri at that time turned to be Rs 1,000, Rs 1,500, Rs 2,000, Rs 2,500, Rs 3,000, Rs 3,500, Rs 4,000, or Rs 4,500 respectively and graph the results.
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Value of a financial derivative depends upon value of underlying asset.TU Board 20241In the money put option has positive intrinsic value.TU Board 20241There is direct / positive relationship between value of call option with time to expiration.TU Board 20241When pricing a put with the binomial model, the up and down probabilities are reversed.TU Board 20241Both put option buyer and seller have the potential for unlimited losses.TU Board 20241If the initial margin is Rs 5,000, the maintenance margin is Rs 3,500 and your margin balance is Rs 4,000, you will receive margin call of Rs 500.TU Board 20241