A collar is established by buying a share of stock for $46, buying a 6-month put option with exercise price $43, and writing a 6-month call option with exercise price $49. On the basis of the volatility of the stock, you calculate that for a strike price of $43 and expiration of 6 months, N(d₁) = .6974, whereas for the exercise price of $49, N(d₁) = 0.6504. a. What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Collar gain by .05 b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in your response.) Delta of the portfolio approaches b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign in your response.) Delta of the portfolio approaches
A collar is established by buying a share of stock for $46, buying a 6-month put option with exercise price $43, and writing a 6-month call option with exercise price $49. On the basis of the volatility of the stock, you calculate that for a strike price of $43 and expiration of 6 months, N(d₁) = .6974, whereas for the exercise price of $49, N(d₁) = 0.6504. a. What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Collar gain by .05 b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in your response.) Delta of the portfolio approaches b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign in your response.) Delta of the portfolio approaches
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![A collar is established by buying a share of stock for $46, buying a 6-month put option with exercise price
$43, and writing a 6-month call option with exercise price $49. On the basis of the volatility of the stock, you
calculate that for a strike price of $43 and expiration of 6 months, N(d₁) = .6974, whereas for the exercise
price of $49, N(d₁) = 0.6504.
What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to
2 decimal places. Omit the "$" sign in your response.)
Collar gain
by
b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in
your response.)
a.
Delta of the portfolio approaches
.05
b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign
in your response.)
Delta of the portfolio approaches](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F11692ae1-e3ad-4239-adfd-841ebf5033ee%2F9af0be06-d45d-41f3-8309-dd0d4d80e241%2Fw93h5ba_processed.png&w=3840&q=75)
Transcribed Image Text:A collar is established by buying a share of stock for $46, buying a 6-month put option with exercise price
$43, and writing a 6-month call option with exercise price $49. On the basis of the volatility of the stock, you
calculate that for a strike price of $43 and expiration of 6 months, N(d₁) = .6974, whereas for the exercise
price of $49, N(d₁) = 0.6504.
What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to
2 decimal places. Omit the "$" sign in your response.)
Collar gain
by
b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in
your response.)
a.
Delta of the portfolio approaches
.05
b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign
in your response.)
Delta of the portfolio approaches
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