Graph the payoffs against ST of a portfolio that is
(c) long in S and short in a put on S
(d) short in S and long in a put on S
Assume the calls and puts are European with strike price K.
Graph the payoffs against ST of a portfolio that is (c) long in S and short...
4. A speculator has a portfolio which is short in a European call with strike K1 and long in a European call with strike K2 . These two calls have the same maturity and underlying asset, but K1 > K2. Say the asset has value S(T) at maturity. This portfolio is called a bull spread. (a) Write an equation to describe the payoff at maturity of the bull spread. (b) For each of the three cases S(T) < K2 <...
Problem 1: Portfolio of Options Draw the resulting payoff from the following combination of options. Make sure that you specify the coordinates of the payoff (x,y) at the intercept and at every strike price. a. 1 long call with strike price 10 and 1 short call with strike price 12. b. 1 short put with strike price 5 and one long put with strike price 9. c. 1 long call with strike price 10 and 2 short call with strike...
Port. 4. What follows are several portfolios; each is denoted by the term Graph the profit curve at t = T for each of them. Determine the strengths and weaknesses of each portfolio. Namely, explain what a reasonable investor must be expecting to adopt each portfolio. In this listing, CE denotes a call with strike price E, -CE represents where a person is short on a call the Call was sold, Pe is a put, -PE is selling, or going...
Consider a portfolio consisting of two long calls and three short calls, all with the same underlying asset. Which of the following is the portfolio’s profit when ST > X? _____ A. ST – X – C B. X – ST + C C. 3X – 2ST + C D. 2X – 2ST + C
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...
4. What follows are several portfolios; each is denoted by the term Port. Graph the profit curve at t = T for each of them. Determine the strengths and weaknesses of each portfolio. Namely, explain what a reasonable investor must be expecting to adopt each portfolio. In this listing, CE denotes a call with strike price E, -CE represents where a person is short on a call- the Call was sold, Pe is a put, -PE is selling, or going...
Using excel, for each scenario graph the value of your portfolio as a function of the relevant stock price. For each of the four graphs, graph for stock prices between 100 and 160. Assume today is the last day for exercising your options. (Each graph should have at least 50 data points.) - You own (are long) a call with an exercise price of 103 and a put at 120. - You are short a call at 120, and long...
Exercise 1. An investor has a short position in a European put on a share for $4. The stock price is $40 and the strike price is $41 Under what cicum be cuercise (b) Under what circumstance does the investor make a profit? (c) Draw a payoff diagram plotting the investor's payoff as a function of Sr. (d) Draw a profit diagram plotting the investor's profit as a function of ST. (e) Suppose now the investor enters also into a...
Which of the following is not a synthetic forward contract? A. Long a call and short a put with the same strike price B. Long a prepaid forward and short a bond C. Long a stock and short a bond D. Long a call with higher strike and short a put with lower strike
Problem 1.4.2. (Long put vs short forward) You are given: (6) The current price of a 100-strike 9-month European put option is 12. (ii) A 9-month forward has a forward price of 105 (iii) The continuously compounded risk-free interest rate is 3% Caleulate the stock price after 9 months such that the long put option and the short forward contract have the same profit.