An investor purchases a call option with an exercise price of $55 for $2.60. The same...

Question

Question

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.

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

Payoff:
For stock price less than 55 0
For stock price between 55 and 60 S-55
For stock price more than 60 5

Profit:
For stock price less than 55 -1.2
For stock price between 55 and 60 S-56.2
For stock price more than 60 3.8

Add a comment

Answer 2

Similar Homework Help Questions

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. 3 months later, the stock price is $56.75. What is the net profit or loss to the investor?
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

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...
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...

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...
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?...
6. A call option has an exercise price of $45 and a premium of $4. If...

6. A call option has an exercise price of $45 and a premium of $4. If the price of the underlying stock is $60, the total payoff of the option is ____? 7. A put option has an exercise price of $20 and a premium of $2. If the price of the underlying stock is $11, what of the total payoff of the option? 8. You write a call option with an exercise price of $67 and a premium of...

1:An investor buys a call at a price of $6.50 with an exercise price of $60....

1:An investor buys a call at a price of $6.50 with an exercise price of $60. At what stock price will the investor break even on the purchase of the call? 2:An investor purchases a stock for $50 and a put for $0.50 with a strike price of $46. The investor sells a call for $0.50 with a strike price of $59. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus...

An investor purchases a call option with an exercise price of $55 for $2.60. The same...

Homework Answers