a.
Introduction: A call option is an option where a buyer has a right to purchase an asset for a specified price, on or before specified expiry date. It only gives buyers the right to buy but not the commitment to buy a particular asset. A strike price is a price of an underlying asset at which it can be bought and sold by the option holder. The strike price for a call option is said to be exercised when the option holder purchases it.
To identify: Call option will exercise or not and calculate the profit on your position.
b.
Introduction: It is a price where option holder has right to purchase or sell stock at a definite price. A strike price is a price of an underlying asset at which it can be bought and sold by the option holder. The strike price for a call option is said to be exercised when the option holder purchases it
To identify: What happens if you purchase June call with an exercise price of $145.
c.
Introduction: Put option is the option that gives the holder the right to sell an underlying asset at a specified price on or before the expiry date.
To analyze: What happens to the put option if the exercise price is $155.
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- Refer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140. Required: a-1. If the stock price at option expiration is $144, will you exercise your call?a-2. What is the net profit/loss on your position? (Input the amount as a positive value.)a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $135?b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?c-2. What is the rate of return on your position? (Negative…arrow_forwardYou buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract.a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value?c. What is your net profit if IBM’s stock price decreases to $130?d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)arrow_forwardA call option with a strike price of $100 costs $5. A put option with a strike price of $85 costs $4. Explain how a strangle can be created from these two options. What is the cost of this strategy? When should I exercise my options? For what range of future stock prices would the strategy lead to a gain and what is the maximum gain you can receive? Prove your answer by providing an example. 5 For what range of future stock prices would the strategy lead to a loss and what is the maximum loss you could sustain? Prove it by giving an example.arrow_forward
- Suppose you want to price an American style put option for a stock being traded on theKuispad Stock Exchange having the following parameters: s = 18, t = 0.25, K = 20, σ = 0.2, r = 0.07. Using n = 5, calculate the value of V0(0). Provide all necessary detailsarrow_forwardSuppose you want to price an American style put option for a stock being traded on theDryfontein Stock Exchange having the following parameters: s = 18, t = 0.25, K = 20, σ =0.2 and r = 0.07. Using n = 5, calculate the value of V2(2). Provide all necessary details.arrow_forwardAn investor decides to implement a STRADDLE using put options using the following data . The price of stock today is $ 59 , time frame is 6months , the staddle is constructed using a put and a call option with a strike price of $ 61 . The call cost $ 4 and put costs $ 3 . a ) What is the profit ( % ) if in 6 months , if the stock price is at $ 70 b ) What is the profit ( % ) if in 6 months , if the stock price is at $ 60 c ) At what stock price in the future , the investor will make the least / min profit ? d ) Why do investors implement / use this strategy ? For what reason ?arrow_forward
- Suppose you buy a one-year European call option on Apple with an exercise price of $100 and sell a one-year put option with the same exercise price. The current stock price is $100, and the interest rate is 10%. Draw a position diagram showing the payoffs from your investments. How much will the combined position cost you?arrow_forwardSuppose you bought stock XYZ December RM8 put options for40 sen. What is the strike price? Suppose you bought stock XYZ December RM8 put options for 40 sen. What is the premium? Suppose you bought stock XYZ December RM8 put options for 40 sen. Did you buy a call or put options?arrow_forwardNot Excel! Turn back to Figure 20.1 , which lists prices of various IBM options. Use the data in the figure tocalculate the payoff and the profits for investments in each of the following January expirationoptions, assuming that the stock price on the expiration date is $125.a. Call option, X 5 $120.b. Put option, X 5 $120.c. Call option, X 5 $125.d. Put option, X 5 $125.e. Call option, X 5 $130.f. Put option, X 5 $130. Not Excel!arrow_forward
- suppose that you have a call option that is at 1.30. it has a Delta of .35 a Gamma of .06 a Theta of .02 assume Vega is constant. today the stock moves from $45 to $46. the next day (day 2) the stock moves another dollar to $47. What is the value of your call option at the end of day twoarrow_forwardYou are using a two-step binomial tree to estimate the price of a put option on MCD. The strike price of the put option is $22. The price of MCD today is $32. The risk-free rate is 5%. What is the price of the put? Round your solution to the nearest three decimals if needed (Le. 2.312). Please do not type the $ symbol. u-3 d= 0.59 Click on the arrow next to the file below. Next, create a new sheet in the Respondus LockDown Browser spreadsheet. You can use this blank spreadsheet to calculate the answer. Blank Spreadsheet.xisxarrow_forwardConsider a put option on a stock that currently sells 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.arrow_forward
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