A trader buys a European call option and sells (short) a European put option. The options...
A trader buys a European call option and sells (short) a
European put option. The options have the same underlying asset,
strike price, and maturity. Describe the trader’s
position.
The trader monitors the market continuously and finds at one point
that the call is significantly overpriced relative to fair
value.
What strategy is available for the trader to lock in a profit at
current prices?
Homework Answers
Add Answer to:
A trader buys a European call option and sells (short) a European put option. The options...
4. A trader buys a European call option and sells a European put option. The options...
4. A trader buys a European call option and sells a European put option. The options have the same underlying asset, strike price and maturity. Show that the trader's position is equivalent to a forward contract with delivery price that is equal to the strike price of the options.
4. A trader buys a call option and sells a put option. The options have the...
4. A trader buys a call option and sells a put option. The options have the same underlying asset, strike price, and maturity. Describe the trader's position. What is the advantage to making such a trade?
Under what circumstances does the price of the call equal the price of the put?
A trader buys a European call option and sells a European put option. The options have the same underlying asset, strike price, and maturity. Describe the trader’s position. Under what circumstances does the price of the call equal the price of the put?
The current gas price is $3.15. A gas trader buys a gas call option with a...
The current gas price is $3.15. A gas trader buys a gas call option with a strike price of $3.00 and sells a put option with a strike price of 3.25. The option prices are 0.20 and 0.10 dollars respectively and both options expire at the same date. Describe the value of the trader’s position. You can do so by either plotting a chart or showing calculations.
An investor buys a ratio spread of 1-year European calls. He buys 1 call option with...
An investor buys a ratio spread of 1-year European calls. He buys 1 call option with strike price 40 and sells 2 call options with strike price 50. Option prices are Strike price Call option premium 40 10 50 5 Determine the investor's profit if the ending price of the underlying stock is (a) 45, (b) 55, (c) 65. (math Finance)
A trader buys a 1M European call option on a share. The stock price is £108...
A trader buys a 1M European call option on a share. The stock price is £108 and the strike price is £97. 1)What is the intrinsic value of this option? 2)How would the intrinsic value change if this were a 9M option? 3) Will this option be exercised at maturity? Why or why not? 4)What is time value and how does it change the price of an option?
Find the fair value of an European call option and an American put option using the...
Find the fair value of an European call option and an American put option using the incoherent and coherent binomial option tree if the underlying asset pays dividend of 4 PLN in one and half month. The initial stock price is 60 PLN, the strike price of 58 PLN is expiring at the end of the third month, the continuously compounded risk-free interest rate is 10% per annum, and the stock volatility is 20%.
Consider an asset that trades at $100 today. Suppose that the European call and put options...
Consider an asset that trades at $100 today. Suppose that the European call and put options on this asset are available both with a strike price of $100. The options expire in 275 days, and the volatility is 45%. The continuously compounded risk-free rate is 3%. Determine the value of the European call and put options using the Black-Scholes-Merton model. Assume that the continuously compounded yield on the asset is 1,5% and there are 365 days in the year.
Question 7: Consider a European call option and a European put option on a non dividend-paying...
Question 7: Consider a European call option and a European put option on a non dividend-paying stock. The price of the stock is $100 and the strike price of both the call and the put is $103, set to expire in 1 year. Given that the price of the European call option is $10.57 and the risk-free rate is 5%, what is the price of the European put option via put-call parity? Question 8: Suppose a trader buys a call...
(b) A 6-month European call option on a non-dividend paying stock is cur- rently selling for $3. The stock price is...
(b) A 6-month European call option on a non-dividend paying stock is cur- rently selling for $3. The stock price is $50, the strike price is $55, and the risk-free interest rate is 6% per annum continuously compounded. The price for 6-months European put option with same strike, underlying and maturity is 82. What opportunities are there for an arbitrageur? Describe the strategy and compute the gain.
4. A trader buys a European call option and sells a European put option. The options have the same underlying asset, strike price and maturity. Show that the trader's position is equivalent to a forward contract with delivery price that is equal to the strike price of the options.
4. A trader buys a call option and sells a put option. The options have the same underlying asset, strike price, and maturity. Describe the trader's position. What is the advantage to making such a trade?
(b) A 6-month European call option on a non-dividend paying stock is cur- rently selling for $3. The stock price is $50, the strike price is $55, and the risk-free interest rate is 6% per annum continuously compounded. The price for 6-months European put option with same strike, underlying and maturity is 82. What opportunities are there for an arbitrageur? Describe the strategy and compute the gain.
Most questions answered within 3 hours.
-
The vapour pressures of the pure
components P and Q are 700 Torr and 500 Torr...
asked 6 minutes ago -
2. When light enters glass it slows down. When it reemerges from
the other side it...
asked 2 minutes ago -
Calculate the pH of a 0.100 M dicarboxylic acid (H2A)
with the following Ka's (Ka1 =...
asked 3 minutes ago -
you are completing a hypothesis test. You know the following
items:
The test is a right-tailed...
asked 8 minutes ago -
An electric field at a spatial point does NOT depend on: (Choose
all the answers)
a....
asked 13 minutes ago -
As you being to perform the network-mapping phase of the
scenario, you have been asked what...
asked 16 minutes ago -
Find the sample size, n, needed to estimate the percentage of
adults who have consulted fortune...
asked 34 minutes ago -
When the relationship is perfect, the regression of Y on X is a
perfect straight line....
asked 50 minutes ago -
What would be the balanced equation for the addition of
concentrated hydrochloric acid to cobalt chloride?...
asked 54 minutes ago -
Regarding a constructive discharge claim, whether an employee's
working conditions were so intolerable that he/she had...
asked 55 minutes ago -
Use a z -Table to find the specified area.
Between the mean and 3.01 deviations from...
asked 56 minutes ago -
If the rate constant for a particular reaction
triples between 35 °C and
70 °C, calculate...
asked 1 hour ago