If I buy a put option with a strike price of $10, buy a calution with a strike price of $5, and write (sell) a call option with a strike price of $15 on the same underlying stock, where all option contracts have the same maturity, then at maturity the value/payoff of my portfolio of these three option contracts will be worth A. less than $0 OB. between $0 and $5 OC between $5 and $10 O D. SO OE. more than $10 O F. cannot be determined given the available information

If I buy a put option with a strike price of $10, buy a calution with a strike price of $5, and write (sell) a call option with a strike price of $15 on the same underlying stock, where all option contracts have the same maturity, then at maturity the value/payoff of my portfolio of these three option contracts will be worth A. less than $0 OB. between $0 and $5 OC between $5 and $10 O D. SO OE. more than $10 O F. cannot be determined given the available information

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you combine two option contracts as follows. You buy a call option on a stock with an exercise price of $65 for a premium of 9$. At the same time you sell a call option on the same stock with an exercise price of $75 for a premium of $4. Both calls expire at the same time. The stock sells currently at $72. Answer the following questions about this investment strategy: 1. Determinethevalueatexpiration(thepayoffs)andtheprofitunderthefollowingoutcomes: a. The price of the stock at expiration is $78b. The price of the stock at expiration is $69c. Thepriceofthestockatexpirationis$62 2. Determine the following:a. The maximum profit b. The maximum loss 3. Determinethebreakevenstockpriceatexpiration(thestockpriceforwhichyourstrategydeliversno profit and no loss). 4. Depictthepayoffandprofitdiagramsofyourinvestmentstrategy.
Suppose you write the following put option (1 option, not 1 contract containing 100 options). What is the payoff and profit at expiration if the stock price is $75? Put Strike Symbol 80 ABC210621C00040000 Last 3.32 a. payoff is -5.00; profit is 1.68 X b. payoff is -5.00; profit is 3.32 c. payoff is 0; profit is 0 d. payoff is -5.00; profit is -1.68 e. payoff is 0; profit is -3.32 Chg 1.47
You purchase 21 call option contracts with a strike price of $115 and a premium of $4.40. Assume the stock price at expiration is $122.46. What is your dollar profit? What is your dollar profit if the stock price is $108.41? If the stock price is $108.41, the call is ................, so the dollar return is $________
A call option on the stock of Bedrock Boulders has a market price of $7.The stock sells for $30 a share, and the option has a strike price of $25 ashare. What is the exercise value of the call option? What is the option’stime value?
Assume that the value of a call option using the Black-Scholes model is $8.94. The interest rate is 8 percent, and the time to maturity is 90 days. The price of the underlying stock is $47.38, and the exercise price is $45. Calculate the price of a put using the put-call parity relationship.
Consider a call option selling for $4 in which the exercise price is $50. Determine the value at expiration and the profile for a buyer if the price of the underlying at expiration is $55. Determine the value at expiration and the profile for a buyer if the price of the underlying at expiration is $48. 3.Determine the value at expiration and the profit for a seller if the price of the underling at expiration is $49 4.Determine the value at expiration and the profit for a seller if the price of the underling at expiration is $52. 5. Draw the payoff and profit and loss diagram for IV indicating break even, profit/loss, premium and strike price.
Suppose that you hold a call option on S&P 500 Index ETF with an exercise price of $450 and a put option on the same underlying with an exercise price of $430. Today the price of S&P 500 Index ETF is $460. Which of the following is correct? Choose only one: The payoffs of your call option and put option, respectively, today are $10 and $30. The payoffs of your call option and put option, respectively, today are $10 and –$30. The payoffs of your call option and put option, respectively, today are $10 and $0. The payoffs of your call option and put option, respectively, today are –$10 and $30. NONE of the above. Full explain this question text typing work only
Suppose that a call option with a strike price of $48 expires in one year and has a current market price of $5.17. The market price of the underlying stock is $46.25, and the risk-free rate is 1%. Use put-call parity to calculate the price of a put option on the same underlying stock with a strike of $48 and an expiration of one year. The price of a put option on the same underlying stock with a strike of $48 and an expiration of one year is $. (Round to the nearest cent.)
An option is trading at $3.45. If it has a delta of .78, what would the price of the option be if the underlying increases by $.75? A. What would the price of the option be if the underlying decreases by $.55? B. What makes this a call option? C. With a delta of .78, is this option ITM, ATM or OTM and how?
Consider a put option on a stock that curretly sclls for £100, but may rise to £120 or fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90. (a) Calculate the value of the put option using the risk-neutral valuation relationship (RNVR). Explain the reasoning behind your calculations. (b) Calculate the value of the put option by using first principles (No Arbitrage prin- ciples). Explain the reasoning behind your calculations. (c) What is the price of a call option on the same stock with the same exercise price and the same expiration date? Explain the reasoning behind your calculations.
A stock price is $30. An investor buys one call option contract on the stock with a strike price of $28 and sells a call option contract on the stock with a strike price of $27. The market prices of the options are $2 and $1.7, respectively. The options have the same maturity date. Describe the investor’s position and the possible gain/loss he will get (taking into account the initial investment). Make a graph of your gain/loss.
You are interested to value a put option with an exercise price of $100 and one year to expiration. The underlying stock pays no dividends, its current price is $100, and you believe it either increases to $120 or decreases to $80. The risk-free rate of interest is 10%. Calculate the put option's value using the binomial pricing model, presenting your calculations and explanations as follows: a. Draw tree-diagrams to show the possible paths of the share price and put payoffs over one year period. (Note: Show the numbers that are known and use letter(s) for what is unknown in your diagrams.) b. Compute the hedge ratio. c. Find the put option price. Explain your calculations clearly. d. Use put-call parity, find the price of a call option with the same exercise price and the same expiration date.

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