Question

1.   Apple call options strike $330.00 is trading at $127.50 today. Under what circumstances does the investor of a long call make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the investors profit with the stock price at the maturity of the option.
hint: K = 330
C=127.50
Long call profit: St-K-c>0 ,

2.   Apple put options strike $460 is trading at $6.35 today. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the investors profit with the stock price at the maturity of the option.
hint: Long put: K-St-p
K= 460
P=6.35

3.   Explain what a market maker does?
4.   Which are the most common underlying for options

Answer 1

profit Vallations of the a tolke - k- 330 cell option Premium 122.50 First we will build some basics, If you are buying on long on call option it means you are bullish & Fox option put you are buying it means you are bearish So here in this example, we have call option on apple stock, premium = 127.50 it means that if a stock crosses strike of 330. then you a payoff but you have paid 197 so premi UM, so profit will start from 330 t127 50 - 55750 let see in Diagram Profit Payout Diagram Price 560 8600 557.50 . As long as we are long on call, If a price falls to zero, then also we are losing the premium. As price reaches above 557.50, our profit unlimited to Infinity.

Answer 9) Given & strike - 460 Premium = 6.35 Here, we have put option, as primo falls, we will en profit c alls below premium t stike) If a strock price falls below 460-635= 45365 then, we will have poofit till zero stock price. - Payoff Diagram Doemium 45365 stock price. 1000 In this losses are also capped to premium, only because we are long, as long as price falls below 453.65, we will start earning profit & till stolack price zero, we have profit of 453.65.

Answer 3 market marer is one who buys to sells securities to earn a profit. Normally, they coon profit bom Bidask Spread market makers are regulators approved. Brokerage House is one type & they provide service to investors to keep market liquide Answer 4 There are many underlying for options - most commonly used as an stocks commodities currencies Bonds Energy options
Please find answer in image.