Question

The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $95 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $95 is $10.90. a. If the risk-free interest rate is 8% per year, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a 6-month call option b-1. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement? Strategy

Answer 1

Answer (a) put call parity Strike price Time in- ein = initial innual interest rate) years price Call premium + + put premium Call premium $95 + = $ 95+ $ 10.90 (1.08) Ź Call premium + $91.4138 = $ 10 105.90 Call Premium = $14.4862 (1) The Strategy movement is Buy that both the put used in stock price's future a straddle, which means and Call option on Stock is porchased (2) amount position = put call premium + premium - $ 14.4862 + $ 10.90 = $ 25.3862

Stock price I time in it = Stock Interest rate) price amount years - $ 25.3862 (1.08)0650 = $ 25.3862 (1.0392) $ 26. 38