If you thought a stock would likely rise in price, with some downside risk from surprise...
If you thought a stock would likely rise in price, with some downside risk from surprise news, what trading strategy would you implement to minimize losses? Why?
Homework Answers
Buy a call option on stock. This would give the right but not the obligation. Hence, one would exercise only when stock price has risen more than strike price and thus benefit, and not exercise when stock price falls.
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If you thought a stock would likely rise in price, with some
downside risk from surprise...
1. If you thought POGO would likely not rise or fall in price, with some downside...
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IN 421 Investments - Chapter 18 Homework Questions: 6. You expect the price of a stock to...
IN 421 Investments - Chapter 18 Homework Questions: 6. You expect the price of a stock to decline but do not want to sell the stock short and run the risk that the price of the stock may rise dramatically. How could you use a bear spread strategy to take advantage of your expectation of a lower stock price? 7. You sell a stock short. How can you use an option to reduce your risk of loss should the price of...
If you thought interest rates were going to rise, would you prefer longer- or shorter- term...
If you thought interest rates were going to rise, would you prefer longer- or shorter- term bonds in your portfolio? Why
You have $100,000 to invest. Your investment strategy must include at least two options on a...
You have $100,000 to invest. Your investment strategy must include at least two options on a stock of your choice (all options must be on the same stock). They can be either calls or puts or both, with any strike price, as long as all options in your portfolio expire on the same date, and that date is no earlier than June 2020. You can build spreads, straddles, collars, etc. – your choice. Buy them or write them – your...
Assume that the risk-free rate is about 2% and the market risk premium is 8%. If...
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The current price of a stock is $ 48.36 and the annual risk-free rate is 5.3...
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Suppose you buy 100 shares of Google stock which has a current price of $1,265.13 a...
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Problem 14-04 You strongly believe that the price of Breener Inc. stock will rise substantially from...
Problem 14-04
You strongly believe that the price of Breener Inc. stock will
rise substantially from its current level of $138, and you are
considering buying shares in the company. You currently have
$12,420 to invest. As an alternative to purchasing the stock
itself, you are also considering buying call options on Breener
stock that expire in four months and have an exercise price of
$140. These call options cost $10 each.
Compare and contrast the size of the potential...
Suppose in Figure 5.3 that the stock prices of target firms in acquisitions responded to acquisition...
Suppose in Figure 5.3 that the stock prices of target firms in
acquisitions responded to acquisition announcements over a
three-day period rather than almost instantly. a. Would you
describe such an acquisition market as efficient? Why or why not?
b. Can you think of any trading strategy to take advantage of the
delayed price response? c. If you and many others pursued this
trading strategy, what would happen to the price response to
acquisition announcements? d. Some argue that market...
You Just a TD stock at $100 and a put option on the TD stock at $5....
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Problem 14-04
You strongly believe that the price of Breener Inc. stock will
rise substantially from its current level of $138, and you are
considering buying shares in the company. You currently have
$12,420 to invest. As an alternative to purchasing the stock
itself, you are also considering buying call options on Breener
stock that expire in four months and have an exercise price of
$140. These call options cost $10 each.
Compare and contrast the size of the potential...
Suppose in Figure 5.3 that the stock prices of target firms in
acquisitions responded to acquisition announcements over a
three-day period rather than almost instantly. a. Would you
describe such an acquisition market as efficient? Why or why not?
b. Can you think of any trading strategy to take advantage of the
delayed price response? c. If you and many others pursued this
trading strategy, what would happen to the price response to
acquisition announcements? d. Some argue that market...
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