True or False? If the market is in equilibrium, then an option must sell at a...
True or False?
If the market is in equilibrium, then an option must sell at a price that is exactly equal to the difference between the stock’s current price and the option’s strike price.
Homework Answers
Ans False
An option should not trade less than its intrinsic value. It lets arbitrageurs trade the option and underlying stock for a guaranteed profit.
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True or False?
If the market is in equilibrium, then an option must sell at a...
True or False? If we define the “premium” on an option to be the difference between...
True or False? If we define the “premium” on an option to be the difference between the price at which an option sells and the exercise value (or the difference between the stock’s current market price and the strike price), then we would expect the premium to increase as the stock price increases, other things held constant.
An option is written over 1,000 Pacific Limited shares. The option gives the right to sell...
An option is written over 1,000 Pacific Limited shares. The option gives the right to sell 1,000 Pacific shares at a price of $19.00 per share, on or before, 30th November. It is now the 18th of November. Currently a Pacific share can be traded on the stockmarket at a price of $20.40. The option contract can be sold on the market for $0.75. (i) Is this a call or a put option? (ii) What is the option’s exercise price?...
2. Exercise value and option price The value derived from exercising an option immediately is the...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The...
The value derived from exercising an option immediately is the exercise value. No rational investor would...
The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock’s price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or “issue” new options, which is called writing options. Consider the case of ABC Corporation: The...
2. Exercise value and option price The value derived from exercising an option immediately is the...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. Consider...
True or false 2. A call option with a strike price of 101 on a zero-coupon...
True or false 2. A call option with a strike price of 101 on a zero-coupon bond will never be in the money.
Consider the following three statements. Are they true or false? (1) (True or False) In a...
Consider the following three statements. Are they true or false? (1) (True or False) In a price-taker market, all firms produce an identical product and each firm comprises only a very small portion of the total market. (2) (True or False) If a price-taker firm wants to sell its output, it must accept the market price, but it can sell as much output as it wishes at that market price. (3) (True or False) For a price-taker firm, its marginal...
Suppose that you sell for $14 a call option with a strike price of $47, sell...
Suppose that you sell for $14 a call option with a strike price of $47, sell for $7 a call option with a strike price of $57, and buy for $9 each two call options with a strike price of $52. What is your minimum possible profit?
Suppose a stock’s price S(0) = $23 and you purchase a call option with strike X...
Suppose a stock’s price S(0) = $23 and you purchase a call option with strike X = 25 for $5 and also sell a call option with strike X = 35 for $1. Draw the hockey-stick/payoff diagram.
27. The writer (seller) of a put option a. agrees to sell shares at a set...
27. The writer (seller) of a put option a. agrees to sell shares at a set price if the option holder desires b. agrees to buy shares at a set price if the option holder desires c. has the right to buy shares at a set price d. has the right to spl shares at a set price 17. A call option is said to be "in-the-money" if a. the stock price (i.e. the underlying asset) is greater than the...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. Consider...
27. The writer (seller) of a put option a. agrees to sell shares at a set price if the option holder desires b. agrees to buy shares at a set price if the option holder desires c. has the right to buy shares at a set price d. has the right to spl shares at a set price 17. A call option is said to be "in-the-money" if a. the stock price (i.e. the underlying asset) is greater than the...
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