8. The five factors affecting prices of call and put options
Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different.
Use the following table to identify whether each statement describes put options or call options:
Statement |
Put Option |
Call Option |
|
---|---|---|---|
1. An increase in risk-free rate reduces the present value of the option’s exercise price. | |||
2. When the risk-free rate decreases, put prices increase. | |||
3. Option prices are lower when the stock price is higher. | |||
4. The price of a three-month option is always lower than the price of a six-month option. |
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8. The five factors affecting prices of call and put options Both call and put options...
QUESTION 19 Kenny Silver, CFA, is estimating the price of a call option. The call has an exercise price of $100 and a remaining time to expiration of 273 days. The spot price of the underlying stock is $93.25 and a put of the same underlying stock, exercise price and remaining time to expiration is currently priced at $6.50. Assuming a risk-free rate of 8% and a 365-day period, the call option’s arbitrage-free price is a. $5.34 b. $7.66 c....
The value of any option (both call and put options) is positively related to the I) volatility of the underlying stock price; II) time to expiration; III) risk-free rate; Multiple Choice I and II only II and III only I and III only III only
7-9 Chapter 13 Risk and the Pricing of Options 471 Factors Affecting Option Prices 7. What is the maximum payoff that a long put option can have? How about a long cal *8. Can a call option be more valuable than the stock it is written on? 9. Why is an American option with a longer time to expiration generally worth more option? than an otherwise identical option with a shorter time to expiration? The Rinemial Ontion Pricing Model
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price. Current stock price: $48.00 Call option exercise price: $50.00 Sales price of call options: $3.80 Months until expiration of call options: 3 Risk free rate: 2.6 percent Compounding: Continuous A) Price of put option = $5.48 B) Price of put option = $4.52 C) Price of put option = $6.13
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price. Show your work. Current stock price: $48.00 Call option exercise price: $50.00 Sales price of call options: $3.80 Months until expiration of call options: 3 Risk free rate: 2.6 percent Compounding: Continuous A) Price of put option = $5.48 B) Price of put option = $4.52 C) Price of put option = $6.13
2. (a) State the Black-Scholes formulas for the prices at time 0 of a European call and put options on a non-dividend-paying stock ABC.(b) Consider an option on a non-dividend paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 20% per annum, and the time to maturity is 5 months. What is the price of the option if it is a European call?
5.8. The prices of European call and put options on a non-dividend-paying stock with 15 months to maturity, a strike price of $118, and an expiration date in 15 months are $21 and $5, respectively. The current stock price is $125. What is the implied risk-free rate?
2. The following applies to stock options. Fill in the blanks: a. As the stock’s price decreases, a call option on the stock ___________ in value. b. As the stock’s price decreases, a put option on the stock ___________ in value. c. Given two call options on the same stock with the same time to expiration, the call with the greater strike price will cost ________ than the call option with the lower strike price. d. Given two put options...
The table below gives today’s prices of six-month European put and call options written on a share of ABC stock at different strike prices. The stock does not pay a dividend and the risk-free interest rate is 0% per annum. Call Price ($) Strike Price ($) Put Price ($) 13.1 105 8.2 9.7 110 9.7 7.9 115 12.9 Using call options with strike prices of 105 and 110, create a bear spread and show in a table the profit of the...
10 Answer the following a. Suppose data are collected for a certain stock: Stock price Call price (1-year expiration, E $105) Put price (1-year expiration, E 105) $110 $17 $5 5% per year Risk-free interest rate Is there a mispricing of the call and put? If yes, can you exploit this mispricing to create arbitrage proft? b. Design a portfolio using only call options and the underlying stock with the following payoff at expiration: 0 10 20 30 40 S0...