Selling an option is called: 1. writing a straddle. 2. expiring. 3. option spotting. 4. option...
Selling an option is called:
1. writing a straddle. 2. expiring. 3. option spotting. 4. option writing. 5. exercising.
Homework Answers
Ans 4. option writing.
Selling an option is called option writing. In this the option is given to the buyer of the option whether to exercise the option or not at the end of the period.
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Selling an option is called:
1. writing a straddle. 2. expiring. 3. option spotting. 4.
option...
A long straddle is an option strategy in which the investor buys a call option and...
A long straddle is an option strategy in which the investor buys a call option and a put option with the same strike price and the same expiration date. If the strike is $40/share and the premiums for the call and the put are $4/share and $3/share respectively. Draw the profit loss diagram for the long straddle strategy. Repeat problem 1 for a short straddle (i.e. write a call and write a put).
3. You are a portfolio manager and you are considering writing (selling) a large call option...
3. You are a portfolio manager and you are considering writing (selling) a large call option on your existing portfolio. Why would you do this and what is the basic trade-off you must consider in your decision whether to do this or not? 4. Why do you suppose that the most actively traded options tend to be those which are neither far out of the money, nor far in the money, but instead are those which are near the money?
Question 4 (1 point) Here is a screen shot of Amazon call option contract expiring 11/29...
Question 4 (1 point) Here is a screen shot of Amazon call option contract expiring 11/29 Calls for November 29, 2019 Contract Name Last Trade Date Strike Last Price Bid Ask Change AMZN191129C01400000 2019-10-29 11:26AM EDT 1,400.00 360.00 376.50 383 40 000 AMZN191129C01500000 2019-10-21 12:29PM EDT 1,500.00 286.10 277.15 284.00 0.00 AMZN191129001595000 2019-10-25 10:34AM EDT 1,595.00 150.67 183.65 190.50 0.00 Change Volume Open Interest Implied Volatility - - 2 54.36% - - 1 42.32% - 40 40 31.72% Current stock...
30. An investor constructs a long straddle by buying an April $30 call for $4 and...
30. An investor constructs a long straddle by buying an April $30 call for $4 and buying an April put $30 for $3. If the price of the underlying shares is $27 at expiration, what is the profit on the position? a. -$4 b. -$2 c. $2 d. $3 31. Consider an option strategy where an investor buys one call option with an exercise price of $55 for $7, sells two call options with an exercise price of $60 for...
1. Consider a call option selling for $ 4 in which the exercise price is $50....
1. Consider a call option selling for $ 4 in which the exercise price is $50. A) Determine the value at expiration and the profit for a buyer under the following outcomes: i. The price of the underlying at expiration is $55 ii. The price of the underlying at expiration is $51 iii. The price of the underlying at expiration is $48 B) Determine the value at expiration and the profit for a seller under the following outcomes: i. The...
QUESTION 1 Today you are writing a put option on TSLA stock, which is currently valued at $200 per share. The put optio...
QUESTION 1 Today you are writing a put option on TSLA stock, which is currently valued at $200 per share. The put option has a strike price of $178, 6 months to expiration, and currently trades at a premium of $6.1 per share. If at maturity the stock is trading at $164, what is your net profit on this position? Keep in mind that one option Covers 100 shares. QUESTION 2 Today you go long on 5 December contracts of...
A stock is selling for $20 and the 3-month put option on the stock has exercise...
A stock is selling for $20 and the 3-month put option on the stock has exercise price of $20. The continuous risk free rate is 6.4% and the variance of stock returns is 16%. If the variance of the stock returns rises to 25%, what is the new value of the put option? 1) Between 1.400 and 1.499 2) Between 1.500 and 1.599 3) Between 1.600 and 1.699 4) Between 1.700 and 1.799 5) Between 1.800 and 1.899
A call option with a strike price of $50 on a stock selling at 60 costs...
A call option with a strike price of $50 on a stock selling at 60 costs $12.5. The call option's intrinsic value is 1) 10, 12.5 2) 12.5, 10 3) 50, 12.5 4) 10, 2.5 5) None of the above 8. and time value is You purchase one share of IBM July call option. The exercise price is 120 and the option premium is $5. You hold the option until the expiration date when IBM stock sells for $123 per...
Question 2 (1 point) Saved The potential loss for writing a short (or naked) call option...
Question 2 (1 point) Saved The potential loss for writing a short (or naked) call option in infinite. True False
Can you help with Option 1 and 2 and I can figure out Option 3? Problem...
Can you help with Option 1 and 2 and I can figure out Option
3?
Problem 2: Changing Cost Structures (28 points) Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. She also pays a manager $5,000 per month. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the...
3. You are a portfolio manager and you are considering writing (selling) a large call option on your existing portfolio. Why would you do this and what is the basic trade-off you must consider in your decision whether to do this or not? 4. Why do you suppose that the most actively traded options tend to be those which are neither far out of the money, nor far in the money, but instead are those which are near the money?
Question 4 (1 point) Here is a screen shot of Amazon call option contract expiring 11/29 Calls for November 29, 2019 Contract Name Last Trade Date Strike Last Price Bid Ask Change AMZN191129C01400000 2019-10-29 11:26AM EDT 1,400.00 360.00 376.50 383 40 000 AMZN191129C01500000 2019-10-21 12:29PM EDT 1,500.00 286.10 277.15 284.00 0.00 AMZN191129001595000 2019-10-25 10:34AM EDT 1,595.00 150.67 183.65 190.50 0.00 Change Volume Open Interest Implied Volatility - - 2 54.36% - - 1 42.32% - 40 40 31.72% Current stock...
30. An investor constructs a long straddle by buying an April $30 call for $4 and buying an April put $30 for $3. If the price of the underlying shares is $27 at expiration, what is the profit on the position? a. -$4 b. -$2 c. $2 d. $3 31. Consider an option strategy where an investor buys one call option with an exercise price of $55 for $7, sells two call options with an exercise price of $60 for...
QUESTION 1 Today you are writing a put option on TSLA stock, which is currently valued at $200 per share. The put option has a strike price of $178, 6 months to expiration, and currently trades at a premium of $6.1 per share. If at maturity the stock is trading at $164, what is your net profit on this position? Keep in mind that one option Covers 100 shares. QUESTION 2 Today you go long on 5 December contracts of...
A stock is selling for $20 and the 3-month put option on the stock has exercise price of $20. The continuous risk free rate is 6.4% and the variance of stock returns is 16%. If the variance of the stock returns rises to 25%, what is the new value of the put option? 1) Between 1.400 and 1.499 2) Between 1.500 and 1.599 3) Between 1.600 and 1.699 4) Between 1.700 and 1.799 5) Between 1.800 and 1.899
A call option with a strike price of $50 on a stock selling at 60 costs $12.5. The call option's intrinsic value is 1) 10, 12.5 2) 12.5, 10 3) 50, 12.5 4) 10, 2.5 5) None of the above 8. and time value is You purchase one share of IBM July call option. The exercise price is 120 and the option premium is $5. You hold the option until the expiration date when IBM stock sells for $123 per...
Question 2 (1 point) Saved The potential loss for writing a short (or naked) call option in infinite. True False
Can you help with Option 1 and 2 and I can figure out Option
3?
Problem 2: Changing Cost Structures (28 points) Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. She also pays a manager $5,000 per month. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the...
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