An investor wants to construct a bull spread using put options with the same expiration dates....
An investor wants to construct a bull spread using put options with the same expiration dates. The investor needs to long the put with strike price K1 and short the put with strike price K2(> K1).
(a) True
(b) False
Homework Answers
yes it is true.
A bull put spread consists of two put options. First, an investor buys a put option and pays a premium. Next, the investor sells a put option at a higher strike price than the purchased put receiving a premium. Both options have the same expiration date.
The premium earned from selling the higher-strike put exceeds the price paid for the lower-strike put. The investor receives an account credit of the net difference of the premiums from the two put options at the onset of the trade.
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An investor wants to construct a bull spread using put options
with the same expiration dates....
An investor wants to construct a bear spread using two put options with the same expiration...
An investor wants to construct a bear spread using two put options with the same expiration T. One put has the strike price of $20 and currently sells for $2. The other put has the strike price of $30 and currently sells for $7. Find the range of stock price on T that results in a positive profit for the investor.
3. Consider two European put options with the same expiration dates and the same strike prices....
3. Consider two European put options with the same expiration dates and the same strike prices. The underlying assets of the two options are different. One option is for stock A whose current price is $50 and has the volatility of 30%. The other is for stock B whose current price is $45 and has the volatility of 25%. Both stock A and B will pay no dividends. The price of put A is always higher than the price of...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
To apply Bull Spread strategy, an investor buys for $3 a three-month call with a strike...
To apply Bull Spread strategy, an investor buys for $3 a three-month call with a strike price of $30 and sells for $1 a three-month call with a strike price of $35. The payoff from this bull spread strategy is $5 if the stock price is above $35 and zero if it is below $30. Please consider the different stock prices at expiration date to conduct a profit analysis and draw profit diagram.
4. A speculator has a portfolio which is short in a European call with strike K1...
4. A speculator has a portfolio which is short in a European call with strike K1 and long in a European call with strike K2 . These two calls have the same maturity and underlying asset, but K1 > K2. Say the asset has value S(T) at maturity. This portfolio is called a bull spread. (a) Write an equation to describe the payoff at maturity of the bull spread. (b) For each of the three cases S(T) < K2 <...
6. The following table shows the premiums of European call and put options having the same...
6. The following table shows the premiums of European call and put options having the same underlying stock, the same time to expiration but different strike prices: StrikeCall Premium Put Premium $20 $23 $25 $3.59 $2.45 $1.89 $2.64 $4.36 $5.70 You use the above call and put options to construct an asymmetric butterfly spread with the following characteristics (i) The maximum payoff of 6 is attained when the stock price at expiration is 23 (ii) The payoff is strictly positive...
3. For the same asset and expiry, suppose that an investor holds a put option with strike K1 and ...
3. For the same asset and expiry, suppose that an investor holds a put option with strike K1 and another put option with strike K2, where K2> Ki. Assume that the investor writes two puts with strike (Ki +K2)/2. Find a formula for the value of the option at expiry and sketch the payoff diagram.
3. For the same asset and expiry, suppose that an investor holds a put option with strike K1 and another put option with strike K2,...
The goal of this project is to examine option trading strategies. The project requires you to...
The goal of this project is to examine option trading strategies. The project requires you to work in Excel with the provided spreadsheet. A) Bull Spread Payoff Long call option K1 = Short call option K2 = Stock Price (ST) Total Payoff $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 A) Consider buying a call option with a strike of $20 and a selling call option with strike of $30. Fill in the table for...
A put option and a call option on a stock have the same expiration date and the same exercise (or strike price). Both options expire in 6 months. Assume that put-call parity holds and interest rate is...
A put option and a call option on a stock have the same expiration date and the same exercise (or strike price). Both options expire in 6 months. Assume that put-call parity holds and interest rate is positive. If both call and put options have the same price, which of the following is true? A) Put option is in-the-money. B) Call option is in-the-money. C) Both call and put options are in-the-money. D) Both call and put options are out-of-the-money.
10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread...
10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread using the puts with strike prices 170 and 175. Be sure to use the appropriate bid and ask prices. a. What will be your cash flow per share when you set up the position? Show all cash flows: inflows, outflows, and net flow. Inflow Outflow Net Flow b. The maximum profit on the put bear spread is c. The minimum profit on the put...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
6. The following table shows the premiums of European call and put options having the same underlying stock, the same time to expiration but different strike prices: StrikeCall Premium Put Premium $20 $23 $25 $3.59 $2.45 $1.89 $2.64 $4.36 $5.70 You use the above call and put options to construct an asymmetric butterfly spread with the following characteristics (i) The maximum payoff of 6 is attained when the stock price at expiration is 23 (ii) The payoff is strictly positive...
3. For the same asset and expiry, suppose that an investor holds a put option with strike K1 and another put option with strike K2, where K2> Ki. Assume that the investor writes two puts with strike (Ki +K2)/2. Find a formula for the value of the option at expiry and sketch the payoff diagram.
3. For the same asset and expiry, suppose that an investor holds a put option with strike K1 and another put option with strike K2,...
10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread using the puts with strike prices 170 and 175. Be sure to use the appropriate bid and ask prices. a. What will be your cash flow per share when you set up the position? Show all cash flows: inflows, outflows, and net flow. Inflow Outflow Net Flow b. The maximum profit on the put bear spread is c. The minimum profit on the put...
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