1. An investor buys a European put on a share of $4. The stock price is $45 and the strike price is$42. Fill the table and answer.Stock price (ST) in the market $30$35$40$42$45$50$55Option value (Pay off)PremiumProfita) Under what circumstances does the investor make a profit?b) Under what circumstances will the option be exercised?c) What is the maximum profit an investor can make if he/she buys this put option?

If any person buys a put option, he will get a payoff only when Stock Price(Sr) is below the Strike…

1. An investor buys a European put on a share of $4. The stock price is $45 and the strike price is $42. Fill the table and answer. $45 $50 $55 Stock price (ST) in the market $30 Option value (Pay off) $35 $40 $42 Premium Profit a) Under what circumstances does the investor make a profit? b) Under what circumstances will the option be exercised? c) What is the maximum profit an investor can make if he/she buys this put option?

1. An investor buys a European put on a share of $4. The stock price is $45 and the strike price is $42. Fill the table and answer. $45 $50 $55 Stock price (ST) in the market $30 Option value (Pay off) $35 $40 $42 Premium Profit a) Under what circumstances does the investor make a profit? b) Under what circumstances will the option be exercised? c) What is the maximum profit an investor can make if he/she buys this put option?

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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1. For each of the following cases, calculate (i) the cashflow paid or received today on entering the position, (ii) the gross payoff at expiry, and (iii) the net payoff from your option trading All options are European style and cover 100 shares in the underlying asset. a) You enter a long call option with a strike price of $6 and premium of $2.30. At expiry, the share price is $7.80. b) You enter a long call option with a strike price of $9 and premium of $0.80. At expiry, the share price is $7.90. c) You enter a short call option with an exercise price of $5 and premium of $0.70. The share price at expiry is $5.40. d) You enter a short call option with an exercise price of $5 and premium of $0.70. The share price at expiry is $4.90. e) You buy a long - put option with a strike price of $10 for a premium of $ 1.20. At expiry, the share price is $8.50. f) You write (i. e., short) a put option with strike price $7 for a premium of $0.60. At expiry, the share price is $5.
2. Calculate the put premium according to put-call parity which gives no arbitrage opportunity. Explain what transaction would you do if the put premium is below/above the put premium you calculated. European call option premium: c = $2 Stock price today: So- $30 Life of option: T=0.5 Risk-free rate for maturity T with continous compounding: r= 8% Strike price: K= Decide on the K value yourself (carefully). No dividends paid during life of option.
Please answer question 4-a
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A) Does this model satisfy the no-arbitrage assumption? B) Calculate the risk-neutral probabilities of up and down movements in the share price. C) Determine the no-arbitrage price of a European call option on the share with strike price K=70 and expiry time T=2.
Previously, you purchased a European put option on Parlicoot Inc shares. The option has just matured. The strike price on the option is 98.17, while the current stock price is 89.19. What is your payoff?
Question 5: Suppose that a March call option to buy a share for $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.Plz explain it
You sold a put contract on EDF stock at an option price of $.25 and an exercise price of $22.50. The option expires today when EDF stock is selling for $21.70 a share. Ignoring transactions costs and taxes, what is your total profit on this investment?
a one year call option on a stock with a price of $40 costs $1; a one-year put option on the stock with a strike price of $35 costs $4. suppose that a trader buys two cal options and one put option. the breakeven stock price above which the trader makes a profit is a) $42 b) $45 c) $44 d) $43

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