Suppose that you have been offered two packages. Package A contains 1000 call options at strike...
Suppose that you have been offered two packages. Package A contains 1000 call options at strike price of $182. Package B contains 100 call options at strike price of $80. Suppose stock price next year could be $100 with probability 0.75 and $200 with probability 0.25. Suppose that you are risk neutral. Which package would you choose
Homework Answers
Payoff of 1 call option 1 year later in Package
A=max(100-182,0)*0.75+max(200-100,0)*0.25=25
Total payoff from Package A=25*1000=25000
Payoff of 1 call option 1 year later in Package
B=max(100-80,0)*0.75+max(200-80,0)*0.25=20
Total payoff from Package B=20*100=2000
If both package are offereed at the same price, we should accept
Package A
Add Answer to:
Suppose that you have been offered two packages. Package A
contains 1000 call options at strike...
Suppose a stock valued at $30 today and that European call and put options are offered...
Suppose a stock valued at $30 today and that European call and put options are offered on this asset today, expire at the same time, and that both carry a strike price of $33. If the premium on the call and put are $12 and $9 respectively and the interest rate stays at 6%, how soon should the options to avoid arbitrage?
Suppose you do a one-year straddle strategy using a Call and a Put. The strike price...
Suppose you do a one-year straddle strategy using a Call and a Put. The strike price is $100. The underlying is the stock of company ABC. Assume the prices the stock can take next year are either $80 or $150. Both states of nature can reveal with 50% probability. (a) What are the payoff you receive in the two possible scenarios stated before? Explain what is the option you exercise in every case. (b) What is the expected payoff if...
Assume the Black-Scholes framework for options pricing. You are a portfolio manager and already have a...
Assume the Black-Scholes framework for options pricing. You are a portfolio manager and already have a long position in Apple (ticker: AAPL). You want to protect your long position against losses and decide to buy a European put option on AAPL with a strike price of $180.15 and an expiration date of 1-year from today. The continuously compounded risk free interest rate is 8% and the stock pays no dividends. The current stock price for AAPL is $200 and its...
2. Assume there are two Call options for Intel stock at CBOE with strike price 100...
2. Assume there are two Call options for Intel stock at CBOE with strike price 100 and 120. The current stock price for Intel is 110. Construct a Bull Spread using these options. Specify the option positions you hold. Draw the terminal payoff graph for the bull spread. (1)
A 1-year European call and put options on a non-dividend paying stock has a strike price...
A 1-year European call and put options on a non-dividend paying stock has a strike price of 80. You are given: (i) The stock’s price is currently 75. (ii) The stock’s price will be either 85 or 65 at the end of the year. (iii) The continuously compounded risk-free rate is 4.5%. (a) Determine the premium for the call. (b) Determine the premium for the put.
Assume the following premia: Strike $950 Call $120.405 93.809 84.470 71.802 51.873 Put $51.777 74.201 1000...
Assume the following premia: Strike $950 Call $120.405 93.809 84.470 71.802 51.873 Put $51.777 74.201 1000 1020 84.470 101.214 1050 1107 137.167 I 1) Suppose you invest in the S&P stock index for $1000, buy a 950-strike put, and sell a 1050- strike call. Draw a profit diagram for this position. What is the net option premium? 2) Here is a quote from an investment website about an investment strategy using options: One strategy investors apply is a "synthetic stock."...
Assume that you have been given the following information on Purcell Industries' call options: Current stock...
Assume that you have been given the following information on Purcell Industries' call options: Current stock price = $15 Strike price of option = $14 Time to maturity of option = 9 months Risk-free rate = 8% Variance of stock return = 0.13 d1 = 0.56923 N(d1) = 0.71540 d2 = 0.25698 N(d2) = 0.60140 According to the Black-Scholes option pricing model, what is the option's value? Do not round intermediate calculations. Round your answer to the nearest cent. Use...
please just do question 7. thank you Silicon MicroSystems, Inc. (SMSI) stock is currently selling for...
please just do question 7.
thank you
Silicon MicroSystems, Inc. (SMSI) stock is currently selling for $100 and the firm pays no dividends. The stock's volatility is 0.30 and the risk-free rate is 8%. Consider the following 6-month call and put options on SMSI stock (assume that contract size is 1 share): 6. Call 1 Call 2 Call 3 Strike $90 Price $12.817 $6.999 $3.380 Delta Gamma $100$110 0.7690.548 0.333 ma 0.0180.024 0.022 Put 1 90 Put 2 Put 3...
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a strike price of $45 and an expiration date in six months. Both sell for $2. The risk-free interest rate is 5% p.a. The current stock price is $43. There is no dividend expected for the next six months. a) If the stock price in three months is $48, which option is in the money and which one is out of the money? b) As an arbitrageur, can...
a) You have written a call option on 1 share of A Street stock that is...
a) You have written a call option on 1 share of A Street stock that is worth $15. You expect the price of the stock to either move to $20 or $10 over the next year. How many shares of A Street stock should you own to perfectly hedge your position on the call option? The strike price on the option is $15. b) If the one-year risk-free interest rate is 10% and the strike price on the option is...
Assume the Black-Scholes framework for options pricing. You are a portfolio manager and already have a long position in Apple (ticker: AAPL). You want to protect your long position against losses and decide to buy a European put option on AAPL with a strike price of $180.15 and an expiration date of 1-year from today. The continuously compounded risk free interest rate is 8% and the stock pays no dividends. The current stock price for AAPL is $200 and its...
2. Assume there are two Call options for Intel stock at CBOE with strike price 100 and 120. The current stock price for Intel is 110. Construct a Bull Spread using these options. Specify the option positions you hold. Draw the terminal payoff graph for the bull spread. (1)
Assume the following premia: Strike $950 Call $120.405 93.809 84.470 71.802 51.873 Put $51.777 74.201 1000 1020 84.470 101.214 1050 1107 137.167 I 1) Suppose you invest in the S&P stock index for $1000, buy a 950-strike put, and sell a 1050- strike call. Draw a profit diagram for this position. What is the net option premium? 2) Here is a quote from an investment website about an investment strategy using options: One strategy investors apply is a "synthetic stock."...
please just do question 7.
thank you
Silicon MicroSystems, Inc. (SMSI) stock is currently selling for $100 and the firm pays no dividends. The stock's volatility is 0.30 and the risk-free rate is 8%. Consider the following 6-month call and put options on SMSI stock (assume that contract size is 1 share): 6. Call 1 Call 2 Call 3 Strike $90 Price $12.817 $6.999 $3.380 Delta Gamma $100$110 0.7690.548 0.333 ma 0.0180.024 0.022 Put 1 90 Put 2 Put 3...
Most questions answered within 3 hours.
-
lease solve all the
questions, don't need to explanations
Q1 - All animal
species have general...
asked 2 hours ago -
Business Phasing
1.Discuss the logical progression for growing a business, which
starts from the initial idea...
asked 2 hours ago -
Modify
When executing on the command line having only
this program name, the program will accept...
asked 3 hours ago -
Kenny Electric Company's noncallable bonds were issued several
years ago and now have 20 years to...
asked 3 hours ago -
find H(e^Jtheta) at theta= 0, pi/10, pi/20, pi/2 for
the following:
a) H(e^Jtheta)= 1+e^Jtheta
b) H(e^Jtheta)=...
asked 4 hours ago -
Home Corporation will open a new store on January 1. Based on
experience from its other...
asked 4 hours ago -
In a neoclassical model, use the IS-LM to analyze the effect of
a permanent money supply...
asked 5 hours ago -
An electron passes through a point 2.67 cm from a long straight
wire as it moves...
asked 5 hours ago -
A grammar is a 4-tuple G, G = (Ν, Σ, Π, Σ, S) where, Ν is...
asked 6 hours ago -
In this part, calculate the present values. Use the Excel PV
function to compute the present...
asked 6 hours ago -
Part 1. Primitive Types, Sorting, Recursion for
Homework.java
a) Implement the static method initializeArray that receives...
asked 7 hours ago -
Using C++, build a sorter that can rank a sequence of numbers in
a descending order....
asked 7 hours ago