Suppose that you buy a ABC 30 call. What is the payoff if after 6 months...
Suppose that you buy a ABC 30 call. What is the payoff if after 6 months 1. if the price of the underlying is $20? 2. if the price of the underlying is $30? 3. if the price of the underlying is $40?
Suppose that a stock is $70 at maturity and the effective RFR is 8%. What is the profit at maturity for the following 1 year European call options? 1. ABC 65 call at $9.11 2. XYZ 70 call at $6.87 3. LMN 75 call at $4.44
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Suppose that you buy a ABC 30 call. What is the payoff if after
6 months...
The diagram below represents the payoff of a European call option on the stock with a...
The diagram below represents the payoff of a European call option on the stock with a strike price (K)= $100, initial cost (option premium) =$10, and option life of 6 months. The market price of the underlying stock reaches ($115) at the maturity date of the option, explains in detail whether the holder of this option will exercise his option and achieve profit knowing that the profit is the final payoff minus the initial cost? 30 20 10 0 -10...
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...
You purchase a European put option on XYZ stock with strike price 50. What is the...
You purchase a European put option on XYZ stock with strike price 50. What is the payoff to the option if XYZ stock is trading at 48 on the expiration day? You purchase a 1-year European call option on ABC stock with strike price 100. The option premium is $10. The effective annual interest rate is 10%, so that 100 dollars lent for 1 year will return 110 dollars. What is the PROFIT if ABC stock is trading at 111...
3) You like the near term prospect of ABC Company and decide to buy the stock...
3) You like the near term prospect of ABC Company and decide to buy the stock call options. The current stock price is $53. You will buy 10 contracts with $54 strike price and it expires in nine months. The call premium for each share is $1. 6 months later, the stock price increases to $56, Questions: a) What’s the breakeven stock price for the call option? b) What’s the option intrinsic value? c) What’s the option’s payoff? D) Draw...
Suppose the prices of 3-month European call options with strike prices of $40, $45 and $50 are $6.08, $2.70, and $0.86, respectively.
Suppose the prices of 3-month European call options with strike prices of $40, $45 and $50 are $6.08, $2.70, and $0.86, respectively. a) Explain how a trader can create a butterfly spread using these options. b) What is the profit when the price of the underlying asset in three months is $40 c) What is the profit when the price of the underlying asset in three months is $43 d) What is the profit when the price of the underlying...
Suppose that a European CALL option to buy a share for $68 costs $17 and is...
Suppose that a European CALL option to buy a share for $68 costs $17 and is held until maturity. Which of the following stock price will always create a profit for the seller of this CALL option? stock prices higher than $90 none of the above stock prices higher than $70 stock prices lower than $95 stock prices lower than $85
Consider three call options on the same underlying stock and same expiration date. You buy the...
Consider three call options on the same underlying stock and same expiration date. You buy the call with X=40, buy the call with X=30, and sell two calls with X=35. What is the payoff from your position if the stock prices ends at $32? What is the highest payoff from this position? What is the lowest payoff from this position? For you to engage in such a position, what are your expectations about the stock price? PS: In all questions...
10 Answer the following a. Suppose data are collected for a certain stock: Stock price Call...
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...
(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
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?
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."...
You purchase a European put option on XYZ stock with strike price 50. What is the payoff to the option if XYZ stock is trading at 48 on the expiration day? You purchase a 1-year European call option on ABC stock with strike price 100. The option premium is $10. The effective annual interest rate is 10%, so that 100 dollars lent for 1 year will return 110 dollars. What is the PROFIT if ABC stock is trading at 111...
Consider three call options on the same underlying stock and same expiration date. You buy the call with X=40, buy the call with X=30, and sell two calls with X=35. What is the payoff from your position if the stock prices ends at $32? What is the highest payoff from this position? What is the lowest payoff from this position? For you to engage in such a position, what are your expectations about the stock price? PS: In all questions...
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...
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."...
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