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.
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.
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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Transcribed Image Text: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.
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