Question

A collar is established by buying a share of stock for $45, buying a six-month put option with exercise price $38, and writing a six-month call option with exercise price $52. Based on the volatility of the stock, you calculate that for an exercise price of $38 and maturity of six months, M(d1) 0.7314, whereas for the exercise price of $52, Nd0.6192 What will be the gain or loss on the collar if the stock price increases by $1? (Input the amount as a positive value. Round your answer to 3 decimal places.) (Click to select" ) of $

Answer 1

	DELTA
Stock	$1.0000
Short Call [-N(d1)]	- 0.6192
Long Put [N(d1) - 1]	- 0.2686
Total	$0.1122

If the stock price increases by $1, the value of the collar increases by $0.1122. The stock will be worth $1 more, the loss on the short put is $0.2686, and the call written is a liability that increases by $0.6192.