EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 21, Problem 31PS
Summary Introduction
(A)
Adequate information:
a. Choice A: $100,000 invested in calls with X 50.
Choice B: $100,000 invested in EFG stock.
b. Choice A: 10 call options contracts (for 100 shares each), with X= 50.
Choice B 1,000 shares of EFG stock.
To Compute:
To determine whether to choose choice A or choice B by using the given information.
Introduction:
The options to choose is calculated using the below values.
Summary Introduction
(B)
Adequate information:
a. Choice A: $100,000 invested in calls with X 50.
Choice B: $100,000 invested in EFG stock.
b. Choice A: 10 call options contracts (for 100 shares each), with X= 50.
Choice B 1,000 shares of EFG stock.
To Compute:
To determine whether to choose choice A or choice B by using the given information.
Introduction:
The options to choose is calculated using the below values.
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Students have asked these similar questions
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…
You are very bullish (optimistic) on stock EFG, much more so than the rest of the market. In each question, choose the portfolio strategy that will give you the biggest dollar profit if your bullish forecast turns out to be correct. Explain your answer.a. Choice A: $10,000 invested in calls with X = 50.Choice B: $10,000 invested in EFG stock.b. Choice A: 10 call option contracts (for 100 shares each), with X = 50.Choice B: 1,000 shares of EFG stock.
You have a portfolio of options on the same underlying as follows. Each option controls 100 shares.
Long 1 call ∆ ±0.5 Short 5 calls ∆ ±0.8 Short 2 puts ∆ ±0.4
a) How many shares would you need to buy or sell to get your portfolio delta neutral?
Chapter 21 Solutions
EBK INVESTMENTS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You have a portfolio of options on the same underlying as follows. Each option controls 100 shares. Long 1 call ∆ ±0.5 Short 5 calls ∆ ±0.8 Short 2 puts ∆ ±0.4 c) Explain how volatility skew would affect a trader who buys a bull call spread.arrow_forward5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify two alternative investment strategies, one in the stock and the other in an option on the stock (Tell me exactly what you would do in each strategy and calculate the total profit for different stock prices. How many shares/options you would buy/sell?) Strategy 2 (option): Stock price (ST) in the $20 $25 $30 $32 $35 $40 $45 market Option value (Pay off) Premium Profit from strategy 2 a) Would you buy or sell call options? b) How many call options would you buy or sell? c) How will you make money?arrow_forward5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify two alternative investment strategies, one in the stock and the other in an option on the stock (Tell me exactly what you would do in each strategy and calculate the total profit for different stock prices. How many shares/options you would buy/sell?) Strategy 1 (stock): $25 Stock price (ST) in the market Profit from strategy 1 $30 $32 $35 $40 $45 a) Would you buy or sell stocks? b) How many stocks would you buy or sell? c) How will you make money?arrow_forward
- 5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify two alternative investment strategies, one in the stock and the other in an option on the stock Strategy 1 (stock): $25 $30 $32 $40 Stock price (S) in the market Profit from strategy 1 $35 $45 a) Would you buy or sell stocks? b) How many stocks would you buy or sell? c) How will you make money? Strategy 2 (option): $20 $25 $30 $32 $35 $40 $45 Stock price (S-) in the market Option value (Pay off) Premium Profit from strategy 2 a) Would you buy or sell call options? b) How many call options would you buy or sell? c) How will youmake money?arrow_forwardAssume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you’re willing to tolerate a “good deal’’ of risk. What types of stocks (blue chips, income stocks, and so on) do you think you’d be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for selecting each. Would your selections change if you were dealing with a smaller amount of money—say, only $50,000? What if you were a more risk-averse investor?arrow_forwardYou want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Asset Stock A Stock B Stock C Risk-free asset Investment Beta $ 195,000 $ 340,000 $ $ 0.90 1.15 1.23arrow_forward
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