The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3. Introduction: Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

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Answer 1

Question

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

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Joseph Jones, a manager at Computer Science, Inc. (CSI), received 10,000 shares of company stock as part of his compensation package. The stock currently sells at $40 a share. Joseph would like to defer selling the stock until the next tax year. In January, however, he will need to sell all his holdings to provide for a down payment on his new house. Joseph is worried about the price risk involved in keeping his shares. At current prices, he would receive $400,000 for the stock. If the value of his stock holdings falls below $350,000, his ability to come up with the necessary down payment would be jeopardized. On the other hand, if the stock value rises to $450,000, he would be able to maintain a small cash reserve even after making the down payment. Joseph considers three investment strategies:a. Strategy A is to write January call options on the CSI shares with strike price $45. These calls are currently selling for $3 each.b. Strategy B is to buy January put options on CSI with…

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Answer 2

Question

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

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Answer 3

Question

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

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Answer 4

Question

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

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Answer 5

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

Answer 6

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

Answer 7

Chapter 20, Problem 15PS

a

Summary Introduction

To evaluate:The investment strategy A in which January call options on CSI shares are written with a strike price of $45. The calls are sold at $3.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is defined as equity risk reversals, zero cost options.

Answer 8

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

Answer 9

b.

Summary Introduction

To evaluate:The investment strategy B in which January put options on CSI shares are purchased with a strike price of $35.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

Answer 10

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

Answer 11

c.

Summary Introduction

To evaluate:The investment strategy C in which zero-cost collar is established by writing the January call options and buying put options. Also highlights the advantages and disadvantages of above three and your recommended options.

Introduction:

Zero cost collar strategy: It is a type of options collar strategy which protects the losses incurred by the investor. The solution used is by purchasing a call and put options which finally cancel each other. Profits are capped if this strategy is used. It is known as equity risk reversals, zero cost options.

Answer 12

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Answer 15

Ch. 20 - Prob. 1PS Ch. 20 - Prob. 2PS Ch. 20 - Prob. 3PS Ch. 20 - Prob. 4PS Ch. 20 - Prob. 5PS Ch. 20 - Prob. 6PS Ch. 20 - Prob. 7PS Ch. 20 - Prob. 8PS Ch. 20 - Prob. 9PS Ch. 20 - Prob. 10PS

Solution Summary: The author explains the zero cost collar strategy, which protects the losses incurred by the investor by purchasing a call and put option which cancel each other.

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