You anticipate a recession with increased stock volatility and greater negative skewness in stock prices. Which of the following option positions would be most consistent with your view? (a) A straddle. (b) A strip. (c) A strap. (d) A vanilla put.
You anticipate a recession with increased stock volatility and greater negative skewness in stock prices. Which...
In expectation of increased price volatility, you purchased a at-the-money call option and at the same time bought a at-the-money put option with common exercise prices of $15. Option premium at $3 each. Your strategy is known as a_____? Please draw out the payoff-profile of this strategy and clearly state all key info. What is the maximum $ would you lose with this strategy?
You are considering taking the following option positions. As part of your analysis calculate the stock price or prices on expiration above which or below which the positions will be profitable (ignore dividends and interest). The current stock price is $68.00 (a) Buy a straddle with an exercise price of 70, where each option costs $5.00. (b) Sell a straddle with an exercise price of 70, where each option costs $5.00.
True or False? 1. An increase in SKEW index from CBOE means that skewness is higher than before and that investors have more concern about the extremely negative stock market returns than before. 2. High CDS spread means the default probability of the corporate debt is low. 3. When you invest in the individual stocks with high volatility and positive skewness for the long term, the probability that your portfolio outperforms the riskfree asset becomes higher 4. If the stock...
The market price of Loblaw Corporation stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a 1-month call option contract with a strike price of $47 and an option price of $1.93. You also purchase a 1-month put option contract on the stock with a strike price of $47 and an option price of $1.28. What will be your total profit or loss on all the transactions related...
Which of the following option strategy makes positive profit only when the stock price does not change much, and makes negative profits otherwise. Select one: a. Short collar (short put with an exercise price lower than the current stock price, short stock, long call with an exercise price higher than the current stock price) b. Long straddle (long call, long put with identical exercise prices equal to the current stock price) c. Long collar (long put with an exercise price...
Suppose you expect the volatility is high and is uncertain about the price movement of the underlying, which of the following is your best strategy? A. Long put B. Long butterfly spreads C. Long call D. Long straddle
QUESTION 25 Which of the following option positions represents the most risk to an investor? a. A long put b. A long straddle. c. A long call. d. A short straddle. QUESTION 26 Mike believes that XYZ stock will increase in value. He buys 20 XYZ March 60 call options for $4 when the price of XYZ is $61. If XYZ falls to $55 and stays there through March, what will be Mike's gain or loss? O a. Gain $8,000...
You are long and at-the-money straddle on a stock index. Which of the following statements is valid? (a) Your position increases in value if, ceteris paribus, the index rises. (b) Your position increases in value if, ceteris paribus, the index falls. (c) Your position increases in value if, ceteris paribus, the volatility of the index rises. (d) All of the above.
Use Figure 20.1, which lists prices of various IBM options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following July expiration options, assuming that the stock price on the expiration date is $150. (Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "O" wherever required. Negative amounts should be indicated by a minus sign.) Payoff Profit/Loss a....
You observe that the stock XYZ is currently trading at $8.50. The continuously compounded volatility is 20% p.a. The stock is due to pay a $0.25 dividend going ex-dividend in 1 month’s time. 3-month European call and put options written on XYZ trading at $0.65 and $0.45 respectively. The strike price on both options is $8.00. The continuously compounded risk free rate is 6%pa. a) Which theoretical Black-Scholes condition is violated? b) Clearly describe the arbitrage process you would perform...