The correct answer is Option A - Long Call.
However, it is shifted upward by the exercise price of the put.
6) A protective put (also known as a covered put) has a payoff that looks like...
mich of the following strategy can make profit from underlying price drop? A. Buying a put B. Selling a put C. Protective put D. Bullish spread E. None above 7. Which of the following is the riskiest single-option transaction? A. Writing a call B. Buying a put C. Writing a put D. Buying a call E. Riskiness of the all the strategies above is the same 8. Which of the following combinations have similarly shaped profit/loss diagrams? A. Covered Call...
11. With respect to put-call parity, a covered call is equivalent to? A. Buying a call B. Selling a put C. Selling a put and invest in risk-free bond D. Selling a put and borrow from risk-free bond E. None above The following information is used for Question 12-15; You want to establish a straddle on Apple. The available call premium is $5 and put premium is $6. Suppose X=$50 for both the call and the put. 12. What is...
You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of S105 at year. end XYZ currently sells for $105. Over the next year the stock price will increase by 9% or decrease by 9%. The T-bill rate is 7%. Unfortunately, no put options are traded on XYZ Co. a. Suppose the desired put option were traded. How much would it cost to purchase? (Do not round...
The payoff diagram for deposit insurance is the same as the payoff diagram for which of the following.a. long callb. short putc. short calld. none is correct
Exercise 1. An investor has a short position in a European put on a share for $4. The stock price is $40 and the strike price is $41 Under what cicum be cuercise (b) Under what circumstance does the investor make a profit? (c) Draw a payoff diagram plotting the investor's payoff as a function of Sr. (d) Draw a profit diagram plotting the investor's profit as a function of ST. (e) Suppose now the investor enters also into a...
What is the maximum payoff that a long put option can have? How about a long call option? What is the maximum payoff that a long put option can have? O A. Twice the difference of the price of the put at the time of purchase and the strike price O B. The stock price at the time of purchase O C. The strike price O D. There is no maximum payoff for a long put option. What is the...
8 What should a trader do when the one-year forward price of an investment asset is too low? Assume that the asset provides no income A. The trader should borrow the price of the asset, buy one unit of the asset and enter into a short forward contract to sell the asset in one year B. The trader should borrow the price of the asset, buy one unit of the asset and enter into a long forward contract to buy...
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 <...
Problem 1: Portfolio of Options Draw the resulting payoff from the following combination of options. Make sure that you specify the coordinates of the payoff (x,y) at the intercept and at every strike price. a. 1 long call with strike price 10 and 1 short call with strike price 12. b. 1 short put with strike price 5 and one long put with strike price 9. c. 1 long call with strike price 10 and 2 short call with strike...
A covered call consists of which of the following? A. Buying a call and buying the underlying stock B. Writing a call and buying the underlying stock C. Buying a put and buying the underlying stock D. Wriing a put and buying the underlying stock Suppose we want to chart the profit or loss of a covered call. The stock is purchased at $75 a share. The call premium is $3.45 and has a strike price of $80. At a...