3. Consider two European put options with the same expiration dates and the same strike prices....
3. Consider two European put options with the same expiration dates and the same strike prices. The underlying assets of the two options are different. One option is for stock A whose current price is $50 and has the volatility of 30%. The other is for stock B whose current price is $45 and has the volatility of 25%. Both stock A and B will pay no dividends. The price of put A is always higher than the price of put B.
(a) True
(b) False
Homework Answers
True. The price of option is determined by many factors and one of these factors is the underlying volatility. Now other things being the same higher the volatility higher is the price of the both call and put option. Here the underlying volatility of the put option on stock A is higher than the volatility of put option on stock B. Hence the price of put A will be higher than the put B.
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3. Consider two European put options with the same expiration dates and the same strike prices....
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
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...
An investor wants to construct a bull spread using put options with the same expiration dates....
An investor wants to construct a bull spread using put options with the same expiration dates. The investor needs to long the put with strike price K1 and short the put with strike price K2(> K1). (a) True (b) False
g) European call with a strike price of $40 costs $7. European put with the same...
g) European call with a strike price of $40 costs $7. European put with the same strike price and expiration date costs $6. Assume that you buy two calls and one put (strap strategy). Sketch the graph and write down functions of payoff and profit h) Consider a stock with a price of $50 and there is European put option on that stock with the strike of $55 and premium of $4. Assume that you buy 1/3 of a stock...
8. The five factors affecting prices of call and put options Both call and put options...
8. The five factors affecting prices of call and put options Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different. Use the following table to identify whether each statement describes put options or call options: Statement Put Option Call Option 1. An increase in...
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?
5.8. The prices of European call and put options on a non-dividend-paying stock with 15 months to...
5.8. The prices of European call and put options on a non-dividend-paying stock with 15 months to maturity, a strike price of $118, and an expiration date in 15 months are $21 and $5, respectively. The current stock price is $125. What is the implied risk-free rate?
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.
the value of a put and the the value of 8- The higher the strike price,...
the value of a put and the the value of 8- The higher the strike price, the a call, all else being equal. a) higher, higher b) lower; lower c) higher, lower d) lower, higher e) Doesn't move; higher 9-A 5-month European call option on a non-dividend-paying stock has a strike price of $30. The underlying stock is selling for $32 and the risk free rate is 6%. If the market value of the call is $35, is there any...
Problem 1: - Using the Black/Scholes formula and put/call parity, value a European put option on...
Problem 1: - Using the Black/Scholes formula and put/call parity, value a European put option on the equity in Amgen, which has the following characteristics. Expiration: Current stock price of Amgen: Strike Price: Volatility of Amgen Stock price: Risk-free rate (continuously compounded): Dividends: 3 months (i.e., 60 trade days) $53.00 $50.00 26% per year 2% None If the market price of the Amgen put is actually $2.00 per share, is the above estimate of volatility higher or lower than the...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
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...
g) European call with a strike price of $40 costs $7. European put with the same strike price and expiration date costs $6. Assume that you buy two calls and one put (strap strategy). Sketch the graph and write down functions of payoff and profit h) Consider a stock with a price of $50 and there is European put option on that stock with the strike of $55 and premium of $4. Assume that you buy 1/3 of a stock...
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.
the value of a put and the the value of 8- The higher the strike price, the a call, all else being equal. a) higher, higher b) lower; lower c) higher, lower d) lower, higher e) Doesn't move; higher 9-A 5-month European call option on a non-dividend-paying stock has a strike price of $30. The underlying stock is selling for $32 and the risk free rate is 6%. If the market value of the call is $35, is there any...
Problem 1: - Using the Black/Scholes formula and put/call parity, value a European put option on the equity in Amgen, which has the following characteristics. Expiration: Current stock price of Amgen: Strike Price: Volatility of Amgen Stock price: Risk-free rate (continuously compounded): Dividends: 3 months (i.e., 60 trade days) $53.00 $50.00 26% per year 2% None If the market price of the Amgen put is actually $2.00 per share, is the above estimate of volatility higher or lower than the...
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