1 FIN 550 8-2 Short Paper_ Call Option Price

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Question 1?

Forever Yours Corporation $6.00 $20.00 Cost of Call Strike price, X Stock price today, Oct 18, 2022,S_0 stock price on Dec. 18, 2022, ST 0 5 10 15 20 25 30 35 40 45 50 $20.00 Exercise the call option? Dollar Payoff from options position formula Dollar Profit from options position formula

An investor owns Citibank stock at $75. They want to sell some 3-month out- of-the-money call options against their position. STRIKES 72.50 75 77.50 CALL PRICE 5.60 4.12 2.84 Create a table showing the profit and loss for underlying trading at 70, 72.5, 75, 77.5, 80 and 82.5 for all the positions and the option strategy. Draw an expiry pay-off diagram, using the prices in the table.

Stock Price to ProfitYou buy an “at the money” April call option on M&M Corp. common stock, which has a strikeprice of $25 and a premium of $4. At what minimum price of M&M Corp. stock will you make a profit?    At what minimum price should you exercise the option and buy the stock?

Can i get some help with this practice test

Stock Price to Profit  You buy an “at the money” April call option on M&M Corp. common stock, which has a strike  price of $40 and a premium of $3.15. What must happen to the price of M&M Corp. stock for you to make a profit?

Initial stock price $75.00                         Expiration Date Strike Price Call Price Put Price       1/15/2022 $65 $12.62 $3.65       1/15/2022 $85 $3.54 $11.25                     Required:             Using the information in the table above, please calculate dollar value of the following option strategies. Use this calculated dollar value to determine the profit of each strategy at various stock prices.                 (Use cells A3 to D7 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.)               The Wilson and Brown Group Dollar Value of Strategy as a Function of Current Stock Price   Strategy $55.00 $65.00 $75.00 $85.00 $95.00   Collar                           The Wilson and Brown Group Rate of Return as a Function of Current Stock Price   Collar

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Question 6 In January 2024, Amazon shares are priced at $80 a share. You believe that theyare overvalued and are worth only $30 a share. June 2024 put options on a strike priceof $60 a share are currently valued at $5. Each put contract is based on 100 shares.(i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Amazon shares sellingfor $30, what is your net dollar profit on a single put options contract in dollars bearing inmind the put option is based on a contract of 100 shares?(iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Amazon shares are selling for $100?

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Question 6  In January 2024, Amazon shares were priced at $80 a share. You believe that they  are overvalued and are worth only $30 a share. June 2024 put options on a strike price  of $60 a share are currently valued at $5. Each put contract is based on 100 shares.  (i) What is the intrinsic value of the put option per share?  (ii) What is the time value of the put option per share?  (iii) If we arrive at expiry in June and you are proved correct with Amazon shares selling  for $30, what is your net dollar profit on a single put options contract in dollars bearing in mind the put option is based on a contract of 100 shares?  (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and  Amazon shares are selling for $100?

Question 4 Which of the following are always positively related to the price of a European call option on a stock (circle three) NOTE: "All or Nothing" Scoring Question options: The stock price The strike price The time to expiration The volatility The risk-free rate The magnitude of dividends anticipated during the life of the option Question 8 Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum potential gain when a bear spread is created from the calls? Question options: $2.00 $2.50 $3.00 None of the above Question 11 Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum potential loss when a bear spread is created from the calls? Question options: $2.00 $2.50 $3.00 None of the above

Question 4  Consider the following: your purchased a put option on JPM two months ago, with a strike price for the option of $138, and the option expires today.  Show work for all parts requiring computation. Suppose the stock price is $152. What is the exercise value?         In general, how is the value of a put option affected by time (+/-/None), underlying asset volatility (+/-/None), and the current asset price (+/-/None)?

Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? Explain your reasoning. (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What will be the total cash settlement by the option writer if the Apple share price expires at $120 per share in June 2023? (v) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and…

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Straddle problem Given a stock with a current strike price of $25 and the following information; Write 1 ABC September 25 Calls @ 1Write 1 ABC September 25 puts @ 3 What is the total premium paid? (assume 1 contract = 100 shares) What is the maximum investor return? What is the maximum investor loss? Why do investors use straddles? If an investor buys a derivative position, are they long or short?

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a) ATH Berhad stock price 7.00 put on ATH Berhad stock 7.00 call on ATH Berhad stock You observe the following price quotes RM 7.30 RM 0.10 RM 0.50 Assuming the options have 15 days left to maturity, determine the intrinsie and time values of each option. Why is the call priced higher than put?

8. Buy one July 170 put contract. Hold it until the option expires. Determine the profits and display the results in a chart (include profits for the following underlying stock prices: 130,140,150,160,170,180,190). Identify the breakeven stock price at expiration. What is the maximum possible gain and loss on the transaction?

You obtain the following information concerning a stock and a put option Price of the stock $42 Strike price $40 Price of the put $3 Expiration date three months You want to purchase the stock but also want to use an option to reduce your risk of loss. What is the total profit or loss if the price of the stock trades for $30 after three months?