The stock price of Tesla (TSLA) is trading at $290 per share in the beginning of Jan2023. You heard that TSLA intend to build plants which will cost $10 billion in Mexico. Yetthe plan has not been formally approved by the government of Mexico but the result willbe known 3 months later. If the plan is approved, it will cause a large rise of TSLA's price(likely $300-$370). However, if the plan is rejected, it is likely that TSLA's price will slumplargely (likely $210-$260) due to the huge sunk cost in the preparation stage. Supposethere are following European equity options (with 3-month maturity from now) available inthe market. Design an option strategy which is likely to utilize this opportunity.Option TypeTSLA March 340 CallTSLA March 290 CallTSLA March 240 CallTSLA March 340 PutTSLA March 290 PutTSLA March 240 PutStrike Price$340$290$240$340$290$240Price1.Describe what your strategy is and draw the payoff graph (Hint: think of a strategy welearned in class).2.Calculate your returns when TSLA price rises to (i) $350 (ii) $230;3. What are the break-even prices of this strategy?$10.3$22.7$31.2$29.4$21.3$9.9

When you expect the stock price to move significantly in either direction, you need to implement a…

1.Describe what your strategy is and draw the payoff graph (Hint: think of a strategy we learned in class). 2.Calculate your returns when TSLA price rises to (i) $350 (ii) $230; 3. What are the break-even prices of this strategy?

1.Describe what your strategy is and draw the payoff graph (Hint: think of a strategy we learned in class). 2.Calculate your returns when TSLA price rises to (i) $350 (ii) $230; 3. What are the break-even prices of this strategy?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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