13) You buy one call contract and also buy one put contract, both with the strike price of $80. The call premium is $6 and the put premium is $8. To keep thìngs simple, you can assume each contract allows the holder to buy or sell one (rather than the typical 100) share of the underlying stock. a. Compute the payoff to your option position if the stock price is $92 when the options expire. b. Compute the profit you made if the stock price is $92 when the options еxpire. c. What would happen to the value of your position if the volatility of returns for the underlying stock increases a day after you bought the call and the put? Please explain your answer for full credit. MacBoolcn
13) You buy one call contract and also buy one put contract, both with the strike price of $80. The call premium is $6 and the put premium is $8. To keep thìngs simple, you can assume each contract allows the holder to buy or sell one (rather than the typical 100) share of the underlying stock. a. Compute the payoff to your option position if the stock price is $92 when the options expire. b. Compute the profit you made if the stock price is $92 when the options еxpire. c. What would happen to the value of your position if the volatility of returns for the underlying stock increases a day after you bought the call and the put? Please explain your answer for full credit. MacBoolcn
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:**Options Strategy Exercise**
You have the opportunity to explore options trading with the following scenario:
1. **Contracts Purchased:**
- Buy one call contract.
- Buy one put contract.
- Both contracts have a strike price of $80.
- The call premium is $6.
- The put premium is $8.
For simplicity, assume each contract pertains to one (rather than the standard 100) share of the underlying stock.
**Tasks:**
a. **Compute the Payoff:**
- Determine the payoff of your options position if the stock price is $92 when the options expire.
b. **Calculate the Profit:**
- Compute the profit made if the stock price is $92 at expiration.
c. **Analyze Position Sensitivity:**
- Discuss the impact on the value of your position if the volatility of returns for the underlying stock increases the day after purchasing the call and put. Provide a detailed explanation to receive full credit.
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