Black-Scholes demonstrates that the value of a put option increases the longer the time to expiration. Currently the price of a stock is $100 and there are two put options to sell the stock at $100. The three-month option sells for $7.00 and the six-month option sells for $4.50.
a) What would you do and why?
b) How much do you earn or lose after three months at the following prices of the underlying stock ($85, $90, $95, $100, $105, and $110)? Assume the worst-case scenario.
c) Is there any reason to anticipate earning a higher return than your answers in (b)? Various option strategies (e.g., the straddle) were explained in this chapter. The following problems apply these strategies.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.