The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices.
Calls |
Puts |
|||
Strike |
March |
June |
March |
June |
45 |
6.84 |
8.41 |
1.18 |
2.09 |
50 |
3.82 |
5.58 |
3.08 |
4.13 |
55 |
1.89 |
3.54 |
6.08 |
6.93 |
Use this information to answer questions 1 through 20. Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
For questions 1 through 6, consider a bull money spread using the March 45/50 calls.
6. Suppose you closed the spread 60 days later. What will be the profit if the stock price is still at $50?
a. $41
b. $198
c. $302
d. $102
e. none of the above
A bull call spread created by two call option of same asset of different strike price with one long of lower strike price and one short of higher strike price.
Pay off from long call option : Max( Sn-K ,0) -P
Pay off from short call: P – MAX ( 0 , Sn-K)
Sn = spot price at time of exercise , K= Strike price , P= premium paid
for 100 share , the pay off from call option : 100*[P – MAX ( 0 , Sn-K)]
Given Sn = 50 ,
Long call | Short call | |
Sn | 50 | 50.00 |
K | 45 | 50.00 |
P | 6.84 | 3.82 |
Pay off | -1.84 | 3.82 |
Net pay off | 1.98 | |
For 100 share pay off | $ 198 | Option B |
The following prices are available for call and put options on a stock priced at $50....
Calls Puts Strike June March June 45 March $6.84 $3.82 $8.41 $1.18 $2.09 50 $5.58 $3.08 $4.13 13. Consider a long strip constructed using the June 45 options. What is the profit if the stock price at expiration is at $60?
Suppose the prices of 3-month European call options with strike prices of $40, $45 and $50 are $6.08, $2.70, and $0.86, respectively. a) Explain how a trader can create a butterfly spread using these options. b) What is the profit when the price of the underlying asset in three months is $40 c) What is the profit when the price of the underlying asset in three months is $43 d) What is the profit when the price of the underlying...