Homework Answers
11]
As per put-call parity equation, a covered call is equivalent to investing in the risk-free bond and selling a put.
The answer is C.
12]
A straddle involves buying a call and put option of the same strike price.
Long options positions have unlimited profit potential.
The answer is D
13]
Minimum payoff is the maximum loss, which equals the total premium paid. The total premium paid = $6 + $5 = $11.
The answer is C
14]
The investor who buys a straddle expects large move, but is uncertain of the direction of the move. The investor also expects the volatility to increase, since option prices increase with volatility.
The answer is C
15]
Upper break-even stock price = option strike price + total premium paid = $50 + $11 = $61
Lower break-even stock price = option strike price - total premium paid = $50 - $11 = $39
The answer is B
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11. With respect to put-call parity, a covered call is equivalent to? A. Buying a call...
E. None above The following information is used for Question 14-17; You want to establish a...
E. None above The following information is used for Question 14-17; You want to establish a straddle on Apple. The available call premium is $5 and put premium is $6. Suppose X-S50 for both the call and the put. fit of this strategy? 16. What is the expectation of the investors who use this strategy A. Underlying price will increase only B. Underlying price will decrease only C. Underlying price volatility is going to be large D. Underlying price volatility...
A covered call consists of which of the following? A. Buying a call and buying the...
A covered call consists of which of the following? A. Buying a call and buying the underlying stock B. Writing a call and buying the underlying stock C. Buying a put and buying the underlying stock D. Wriing a put and buying the underlying stock Suppose we want to chart the profit or loss of a covered call. The stock is purchased at $75 a share. The call premium is $3.45 and has a strike price of $80. At a...
E. None above The following information is used for Question 14-17; You want to establish a...
E. None above The following information is used for Question 14-17; You want to establish a straddle on Apple. The available call premium is $5 and put premium is $6. Suppose X-S50 for both the call and the put. 14. What is the maximum profit of this strategy? A. $50 B. $39 C. SI1 D. Unlimited E. None above 15. What is the minimum payoff of this strategy?
1. The put-call-forward parity relationship LEAST LIKELY includes: A. The underlying asset. B. A risk-free bond....
1. The put-call-forward parity relationship LEAST LIKELY includes: A. The underlying asset. B. A risk-free bond. C. Call and put options. 2. Comparing the premium of an American-style option to an otherwise identical European option, the premium of the American option is: A. Higher. B. The same or lower. C. The same or higher. 3. Which of the following is LEAST LIKELY to be classified as an alternative instrument? A. Swaps. B. Antique furniture. C. Private equity funds. 4. The...
16. A call option has X-$45 and expire in 115 days. The risk-free rate is 4.5%....
16. A call option has X-$45 and expire in 115 days. The risk-free rate is 4.5%. The call is priced at $9.00. A put option has X-$45 and is priced at $3.75. The underlying asset is priced at $50. Which of the following statement is correct? A. There is no arbitrage opportunity B. There is arbitrage loss and whoever invest will lose a lot C. There is arbitrage profit and whoever invest will gain a lot D. It cannot be...
You sell one Xerox June 60 call contract and sell one Xerox June 60 put contract....
You sell one Xerox June 60 call contract and sell one Xerox June 60 put contract. The call premium is $5 and the put premium is $3. Your strategy is called: a short straddle. a long straddle. a horizontal straddle. a covered call. none of the above. At expiration, a profit is realized if the stock price is: between $52 and $68. below $60. above $60. below $52 or above $68. none of the above. Before expiration, the time value...
25. You buy a call option on Boeing Corp with an exercise price of $40 and...
25. You buy a call option on Boeing Corp with an exercise price of $40 and an expiration date in September, and you write a call option on Boeing Corp with an exercise price of $40 and an expiration date in October. This strategy is called a A. Time spread B. Long straddle C. Short straddle D. Money spread E. None of the above 26. The maximum loss a buyer of a stock's call option can suffer is A. The...
mich of the following strategy can make profit from underlying price drop? A. Buying a put...
mich of the following strategy can make profit from underlying price drop? A. Buying a put B. Selling a put C. Protective put D. Bullish spread E. None above 7. Which of the following is the riskiest single-option transaction? A. Writing a call B. Buying a put C. Writing a put D. Buying a call E. Riskiness of the all the strategies above is the same 8. Which of the following combinations have similarly shaped profit/loss diagrams? A. Covered Call...
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...
questions 25-28 please 25. You buy a call option on Boeing Corp with an exercise price...
questions 25-28 please
25. You buy a call option on Boeing Corp with an exercise price of $40 and an expiration date in September, and you write a call option on Boeing Corp with an exercise price of $40 and an expiration date in October. This strategy is called a A. Time spread B. Long straddle C. Short straddle D. Money spread E. None of the above 26. The maximum loss a buyer of a stock's call option can suffer...
E. None above The following information is used for Question 14-17; You want to establish a straddle on Apple. The available call premium is $5 and put premium is $6. Suppose X-S50 for both the call and the put. fit of this strategy? 16. What is the expectation of the investors who use this strategy A. Underlying price will increase only B. Underlying price will decrease only C. Underlying price volatility is going to be large D. Underlying price volatility...
E. None above The following information is used for Question 14-17; You want to establish a straddle on Apple. The available call premium is $5 and put premium is $6. Suppose X-S50 for both the call and the put. 14. What is the maximum profit of this strategy? A. $50 B. $39 C. SI1 D. Unlimited E. None above 15. What is the minimum payoff of this strategy?
16. A call option has X-$45 and expire in 115 days. The risk-free rate is 4.5%. The call is priced at $9.00. A put option has X-$45 and is priced at $3.75. The underlying asset is priced at $50. Which of the following statement is correct? A. There is no arbitrage opportunity B. There is arbitrage loss and whoever invest will lose a lot C. There is arbitrage profit and whoever invest will gain a lot D. It cannot be...
25. You buy a call option on Boeing Corp with an exercise price of $40 and an expiration date in September, and you write a call option on Boeing Corp with an exercise price of $40 and an expiration date in October. This strategy is called a A. Time spread B. Long straddle C. Short straddle D. Money spread E. None of the above 26. The maximum loss a buyer of a stock's call option can suffer is A. The...
mich of the following strategy can make profit from underlying price drop? A. Buying a put B. Selling a put C. Protective put D. Bullish spread E. None above 7. Which of the following is the riskiest single-option transaction? A. Writing a call B. Buying a put C. Writing a put D. Buying a call E. Riskiness of the all the strategies above is the same 8. Which of the following combinations have similarly shaped profit/loss diagrams? A. Covered Call...
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...
questions 25-28 please
25. You buy a call option on Boeing Corp with an exercise price of $40 and an expiration date in September, and you write a call option on Boeing Corp with an exercise price of $40 and an expiration date in October. This strategy is called a A. Time spread B. Long straddle C. Short straddle D. Money spread E. None of the above 26. The maximum loss a buyer of a stock's call option can suffer...
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