Question 5 (20 points) Suppose that a trader writes three naked put option contracts, with each contract being on 1 shares of underlying stock. The option price is $3 on each share, the time to maturity is six months, and the strike price is $60. a. Write out the formula and draw the graph for the trader's profit on each put option on 1 share of stock. ( b. What is the margin requirement for the trader if the current stock price is $58? (5 marks) C. How would the answer to (b) change if the trader is buying instead of writing the options? (5 marks

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter5: Financial Options
Section: Chapter Questions
Problem 4MC
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Question 5 (20 points)
Suppose that a trader writes three naked put option contracts, with each contract being on 1
shares of underlying stock. The option price is $3 on each share, the time to maturity is six
months, and the strike price is $60.
a.
Write out the formula and draw the graph for the trader's profit on each put option on 1
share of stock. (
b. What is the margin requirement for the trader if the current stock price is $58? (5 marks)
C.
How would the answer to (b) change if the trader is buying instead of writing the options? (5
marks
Transcribed Image Text:Question 5 (20 points) Suppose that a trader writes three naked put option contracts, with each contract being on 1 shares of underlying stock. The option price is $3 on each share, the time to maturity is six months, and the strike price is $60. a. Write out the formula and draw the graph for the trader's profit on each put option on 1 share of stock. ( b. What is the margin requirement for the trader if the current stock price is $58? (5 marks) C. How would the answer to (b) change if the trader is buying instead of writing the options? (5 marks
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