An investor purchases a call option with an exercise price of $55 for $2.60. The same...
An investor purchases a call option with an exercise price of $55 for $2.60. The same investor sells a call on the same security with an exercise price of $60 for $1.40. Will the investor follow this strategy when his expectations are bearish or bullish? explain
Homework Answers
Trader Buy Call and Short call at different strike (With Short Call at higher strike). This strategy is known as Bull Spread strategy.
Trader benefits when the Stock price is between the 2 strikes. For rise in stock price above the Short Call Strike, trader benefits from buying the Call option at lower strike.
So with this strategy, upside potential is experienced from long Call and lower side losses are limited due to writing the Call.
Thus trader executes this strategy when he is Bullish on the stock, by writing call at higher strike..
Below is the Payoff and Profit diagram for Bull Spread
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An investor purchases a call option with an exercise price of
$55 for $2.60. The same...
An investor purchases a call option with an exercise price of $55 for $2.60. The same...
An investor purchases a call option with an exercise price of $55 for $2.60. The same investor sells a call on the same security with an exercise price of $60 for $1.40. What is the payoff of the investor's strategy?
An investor purchases a call option with an exercise price of $55 for $2.60. The same...
An investor purchases a call option with an exercise price of $55 for $2.60. The same investor sells a call on the same security with an exercise price of $60 for $1.40. Draw the payoff graph of the stock price.
An investor purchases a call option with an exercise price of $55 for $2.60. The same...
An investor purchases a call option with an exercise price of $55 for $2.60. The same investor sells a call on the same security with an exercise price of $60 for $1.40. 3 months later, the stock price is $56.75. What is the net profit or loss to the investor?
You write a call option with X=60 and buy a call with X= 70. The options...
You write a call option with X=60 and buy a call with X= 70. The options are on the same stock and have the same maturity date. One of the calls sells for $3; the other sells for $9. Write out the payoff and profit function for this strategy at the option maturity date Draw the payoff graph for this strategy at the option maturity date. Draw the profit graph for this strategy. What is the break even point for...
Consider an option strategy where the investor simultaneously buys one call with an exercise price of...
Consider an option strategy where the investor simultaneously buys one call with an exercise price of $120 and sells one call with an exercise price of $110 both with the same expiration date. Calculate the payoff of the strategy when spot price of the underlying is less than $110, between $110 and $120, and greater than $120 at expiration. Draw a payoff diagram for this strategy. What is the bet being made with this strategy?
Consider an option strategy where the investor simultaneously buys one call with an exercise price of...
Consider an option strategy where the investor simultaneously buys one call with an exercise price of $100, sells two calls with an exercise price of $110 and buys one call with an exercise price of $120 all with the same expiration date. Calculate the payoff of the strategy when spot price of the underlying is less than $100, between $100 and $110, between $110 and $120, and greater than $120 at expiration. Draw a payoff diagram for this strategy. What...
EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a...
EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a Treasury security having the same maturity as the option is.9800 (dollars per face). a. What would you expect the price of the underlying security to be? b. Illustrate with a graph the profit or payoff profile that would result from a "covered call" (write...
Investor A sells a put option for $6.60, and investor B sells a call option for...
Investor A sells a put option for $6.60, and investor B sells a call option for $8.79. Both options have the same strike price of $45 and can be exercised in 15 months. Suppose the stock price on the exercise date is $50, and the continuously compounded interest rate is 4%. a) What is the total profit of investor A on the exercise date? Answer = $ b) What is the total profit of investor B on the exercise date?...
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...
Question 11 help Thanks 11) An investor purchases an ABC 60 call for $1.50 in January with March expiration. Followi...
Question 11 help Thanks
11) An investor purchases an ABC 60 call for $1.50 in January with March expiration. Following a stock price increase in February, ABC 60 calls are trading for $7.50, ABC 70 calls are trading for $2.00, and ABC 70 puts are trading for $2.00. All option contracts cover 100 shares and have March expiration. As a follow-up strategy in February, the investor sells an ABC 60 call for $7.50 and purchases three ABC 70 calls at...
EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a Treasury security having the same maturity as the option is.9800 (dollars per face). a. What would you expect the price of the underlying security to be? b. Illustrate with a graph the profit or payoff profile that would result from a "covered call" (write...
Investor A sells a put option for $6.60, and investor B sells a call option for $8.79. Both options have the same strike price of $45 and can be exercised in 15 months. Suppose the stock price on the exercise date is $50, and the continuously compounded interest rate is 4%. a) What is the total profit of investor A on the exercise date? Answer = $ b) What is the total profit of investor B on the exercise date?...
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 11 help Thanks
11) An investor purchases an ABC 60 call for $1.50 in January with March expiration. Following a stock price increase in February, ABC 60 calls are trading for $7.50, ABC 70 calls are trading for $2.00, and ABC 70 puts are trading for $2.00. All option contracts cover 100 shares and have March expiration. As a follow-up strategy in February, the investor sells an ABC 60 call for $7.50 and purchases three ABC 70 calls at...
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