A Call Spread is A. The simultaneous purchase of a call and sale of a put...
A Call Spread is
| A. |
The simultaneous purchase of a call and sale of a put or The simultaneous purchase of a put and sale of a call |
|
| B. |
The simultaneous purchase of a put and sale of an OTM put |
|
| C. |
The simultaneous purchase of an ATM call and sale of an OTM call |
|
| D. |
The simultaneous purchase of a call and purchase of a put with the same strike, usually struck ATM |
Homework Answers
A call spread is created when a hedger buys an at the money call on the stock and sells an out of the money call on the same stock at a higher strike price.
Correct choice C
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A Call Spread is
A.
The simultaneous purchase of a call and
sale of a put...
Consider buying a call option with a strike of $20 and selling a put option with...
Consider buying a call option with a strike of $20 and selling a put option with a strike of $20. Consider buying a put option with a strike of $30 and selling a call option with a strike of $30. Fill in the table for the payoffs of the box spread
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
6. The following table shows the premiums of European call and put options having the same...
6. The following table shows the premiums of European call and put options having the same underlying stock, the same time to expiration but different strike prices: StrikeCall Premium Put Premium $20 $23 $25 $3.59 $2.45 $1.89 $2.64 $4.36 $5.70 You use the above call and put options to construct an asymmetric butterfly spread with the following characteristics (i) The maximum payoff of 6 is attained when the stock price at expiration is 23 (ii) The payoff is strictly positive...
A trader creates a long butterfly spread from put options with strike prices of $90, $100,...
A trader creates a long butterfly spread from put options with strike prices of $90, $100, and $110 per share by trading a total of 40 option contracts (buy 10 contracts struck at $90, sell 20 contracts struck at $100 and buy 10 contracts struck at $110). Each contract is written on 100 shares of stock. The options are worth $18, $24, and $32 per share of stock. What is the value of the butterfly spread at maturity as a...
28 You are considering a strategy that buys a call and shorts a put on the...
28 You are considering a strategy that buys a call and shorts a put on the same stock with the same strike price and expiration date. To replicate the payoff of this strategy, you could also 1) Short the call and purchase the underlying stock at the strike price. 2) Short the underlying stock and lend PV(strike price). 3) Buy the underlying stock and borrow PV(strike price). 4) Long the put and short the underlying stock at the strike price....
(5) A bear spread consists of longing a put option struck at K2 and shorting another...
(5) A bear spread consists of longing a put option struck at K2 and shorting another struck at K with k < K2, both expire at the same date. Plot the payoff profile of a bear spread at its expiry
Assume the August call and put option on Swiss francs have the same strike price of 58½ ($0.5850/...
Assume the August call and put option on Swiss francs have the same strike price of 58½ ($0.5850/SF), and premium of $0.005/SF. In what price range the purchase of the PUT option would choose to exercise the option? a. at all spot rates above the strike price of 58.5 b. at the strike price of 58.5 c. at all spot rates below the strikes of 58.5 d. at all spot rates below the 59
Exercise 5 Consider the box spread strategy: It is a combination of a bull call spread...
Exercise 5 Consider the box spread strategy: It is a combination of a bull call spread and a bear put spread. Bull call spread: Buy one call with exercise E1 S50 and sell one call with exercise E2 $60. Bear put spread: Buy one put with exercise E2 - $60 and sell one put with exercise E1 -S50 a. Complete the table that shows the payoffs for all the positions above. b. Construct the diagram that shows the payoff for...
A put option and a call option on a stock have the same expiration date and the same exercise (or strike price). Both options expire in 6 months. Assume that put-call parity holds and interest rate is...
A put option and a call option on a stock have the same expiration date and the same exercise (or strike price). Both options expire in 6 months. Assume that put-call parity holds and interest rate is positive. If both call and put options have the same price, which of the following is true? A) Put option is in-the-money. B) Call option is in-the-money. C) Both call and put options are in-the-money. D) Both call and put options are out-of-the-money.
Suppose you have a long call spread on Micron Technology. The stock currently trades for $48.03...
Suppose you have a long call spread on Micron Technology. The stock currently trades for $48.03 per share. You buy a Micron call with a strike price of $47.00 for a premium of $1.55 and you sell a Micron call with the same expiration and a strike price of $50 and a premium of 26 cents. What is your total profit or loss at a stock price of $50.00? A. Gain of $71.00 B. Gain of $171.00 C. Gain of...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
6. The following table shows the premiums of European call and put options having the same underlying stock, the same time to expiration but different strike prices: StrikeCall Premium Put Premium $20 $23 $25 $3.59 $2.45 $1.89 $2.64 $4.36 $5.70 You use the above call and put options to construct an asymmetric butterfly spread with the following characteristics (i) The maximum payoff of 6 is attained when the stock price at expiration is 23 (ii) The payoff is strictly positive...
28 You are considering a strategy that buys a call and shorts a put on the same stock with the same strike price and expiration date. To replicate the payoff of this strategy, you could also 1) Short the call and purchase the underlying stock at the strike price. 2) Short the underlying stock and lend PV(strike price). 3) Buy the underlying stock and borrow PV(strike price). 4) Long the put and short the underlying stock at the strike price....
(5) A bear spread consists of longing a put option struck at K2 and shorting another struck at K with k < K2, both expire at the same date. Plot the payoff profile of a bear spread at its expiry
Exercise 5 Consider the box spread strategy: It is a combination of a bull call spread and a bear put spread. Bull call spread: Buy one call with exercise E1 S50 and sell one call with exercise E2 $60. Bear put spread: Buy one put with exercise E2 - $60 and sell one put with exercise E1 -S50 a. Complete the table that shows the payoffs for all the positions above. b. Construct the diagram that shows the payoff for...
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