90.2K

Verified Solution

Link Copied!

Please write out the answers and work for the notebook part and please show answers and work in Excel for the Excel part. Thank you!

Donna Donie, CFA, has a client who believes the common stock price of TRT Materials ($58 currently per share) could moved substantially in either direction in reaction to an expected court decision involving the company. The client currently owns no TRT shares, but asks Donie for advice about implementing a strangle strategy to capitalize on the possible stock price movement. A strangle is a portfolio of a put and a call with higher exercise price but the same expiration date. Ignore interest rate. Donie gathers the TRT option-pricing data: Characteristic Price Strike Price Time to expiration Call Option $5 $60 90 days from now Put Option $4 $55 90 days from now Answer in your notebook: a. Recommend whether Donie should choose a long strangle or a short strangle strategy to achieve the client's objective. Answer in excel: b. Graph the payoff and profit of your strategy that you recommended at part (a). c. Calculate, at expiration for the appropriate strangle strategy in part (a), the break-even stock price (s) d. According to the graph, what is the maximum possible loss per share, and what is the maximum possible gain per share

Answer & Explanation Solved by verified expert

See Answer