Risk A1 Q6-1 Question 6. Protective Put Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The...


Risk A1 Q6-1


Question 6. Protective Put


Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The volatility on the returns of Suncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March:







































CALLS




Strike/Expiry




January 22, 2016




February 19, 2016




March 18, 2016



23



0.34



0.72



0.96



24



0.13



0.41



0.69



25



0.25



0.26



0.40







































PUTS




Strike/Expiry




January 22, 2016




February 19, 2016




March 18, 2016



23



1.28



2.01



2.14



24



2.63



2.80



2.92



25



3.60



3.70



3.95




Each option contract involves 100 shares. The risk-free rates for these three expiration dates are 0.6%, 1%, and 1.2%. All three rates are continuously compounded.


Given the information on Suncor shares and options above, construct a protective put using the 23-put with February expiration. Hold the protective put position until expiration.



What is the payoff and profit function?



Jun 05, 2022
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