The time value of a European option
a. |
is always positive for an at‑the‑money option |
b. |
is always positive for an out‑of‑the‑money option |
c. |
is always positive for an in‑the‑money option |
d. |
decreases with the time that remains until the option expires |
Ans is always positive for an out‑of‑the‑money option
The time value of a European option is always positive for an out‑of‑the‑money option.
It is a conceptual answer.
The time value of a European option a. is always positive for an at‑the‑money option b....
The terms "In", "at" or "out" of the money are directly connected to A-Option Premium B- Option Intrinsic Value C-Option Time Value D Option Strike Price E-Option Expiration
17. Other things being equal, the cheapest option will be A. In-the-money European call options B. In-the-money American call options C. Out-of-the-money European options D. Out-of-the-money American call options 18. Your firm is a US importer of British bicycles. You have placed an order with a British firm for £1,000,000 worth of bicycles. Payment (in pounds sterling) is due in 12 months. How do you hedge the pounds exposure using money market? Suppose you can observe the following financial information:...
In the use of the Black-Scholes option valuation model to determine the value of a European call option, which one of the following relationships is NOT correct? A. An increase in the risk-free rate increases the value of the European call option. B. An increase in the exercise price of the European call option increases the value of the option. C. An increase in the price of the underlying stock increases the value of the European call option. D. An...
You have written a call option on Walmart common stock. The option has an exercise price of $78, and Walmart's stock currently trades at $76. The option premium is $1.45 per contract a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart's stock price decreases to $74 and stays there until the option expires? c. What is your net profit on the option if Walmart's stock price...
Calculate the value of a three-month at-the-money European call option on a stock index when the index is at 250, the risk-free interest rate is 10% per annum, the volatility of the index is 18% per annum, and the dividend yield on the index is 3% per annum.
You have written a call option on Walmart common stock. The option has an exercise price of $87, and Walmart’s stock currently trades at $85. The option premium is $1.25 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $83 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price...
2. An American put option can be exercised: a. b. c. d. e. At any time on or before the expiration date. Only on the expiration date. Any time in the indefinite future. Only after the dividend has been paid. None of the above. 3. A European call option can be exercised: a. Any time in the future. b. Only on the expiration date. c. If the price of the underlying asset declines below the exercise price. d. Immediately after...
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...
Question 3 - 20 Points Consider a European call option on a non-dividend-paying stock where the stock price is $33, the strike price is $36, the risk-free rate is 6% per annum, the volatility is 25% per annum and the time to maturity is 6 months. (a) Calculate u and d for a one-step binomial tree. (b) Value the option using a non arbitrage argument. (c) Assume that the option is a put instead of a call. Value the option...
You have written a call option on Walmart common stock. The option has an exercise price of $80, and Walmart’s stock currently trades at $78. The option premium is $1.55 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $76 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price...