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- If you buy a put option contract on Tesla Inc, with the most heavily traded strike price today. What does owning this contract give you the right to do? If this is your only position in Tesla, are you long or short Tesla?The investor X decides to: Buy a call option for $10 with $100 as strike price Buy a call option for $15 with $90 as the strike price Sell a put option for $10 with $100 as the strike price Buy a put option for $15 with $120 as the strike price a)Calculate the result of the investor if the market price is $60 b)Calculate the result of the investor if the market price is $160 c)Represent the results of the investor for both cases a) and b) in the same figurewhat happens If you would lose money by exercising an option immediately
- Question III: In the following, suppose that neither stock pays a dividend. (a) Suppose you have a call option that permits you to receive one share of Apple by giving up one share of AOL. In what circumstance might you early-exercise this call? (b) Suppose you have a put option that permits you to give up one share of Apple, receiving one share of AOL. In what circumstance might you early-exercise this put? Would there be a loss from not early-exercising if Apple had a zero stock price? (c) Now suppose that Apple is expected to pay a dividend. Which of the above answers will change? Why?Which of the following about options contracts is not true? One only side has an obligation; the other side has a right to exercise O Options contracts can provide substantial leverage O All of these are true O Holders of options contracts can have limited loss but potentially unlimited gains O Options contracts don't have expiration dates[S1] The longer the time to expiration, the less valuable the option is. [S2] The more volatile the price of theunderlying asset, the less valuable the option is. a. Only S1 is true. b. Only S2 is true. c. Both are true. d. Both are false.
- Q2 (Exercise 9.9) Suppose call and put prices are given by Strike 50 55 Call premium 16 10 Put premium 7 14 What no-arbitrage property is violated? What spread position would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.4. AUCTIONS. Consider an auction where bidders have independent private values. Each bidder perceives that valuations are evenly distributed between $1 and $10. Sam knows her own valuation is $9. Determine Sam's optimal bidding strategy in a) A first-price, sealed-bid auction with four bidders b) A Dutch auction with eight bidders c) A second-price, sealed-bid auction with 10 biddersthe buyer of the option is not obliged to complete the deal and will do so only if changes in price make it profitable to do so True or Flase
- The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock’s price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or “issue” new options, which is called writing options. Based on your understanding of exercise value and option prices, complete the table with a strike price of $30.00: Stock Price ($) Strike Price ($) Exercise Value ($) Market Price of Option ($) Time Value ($) 20.00 30.00 0.00 1.56 40.00 30.00 12.10 2.10 50.00 30.00 22.40 2.40 55.00 30.00 25.00 27.60 60.00 30.00 34.00 4.00 After two weeks, the stock price of ABC Corp. increases to $62.40. Suppose you purchased the shares for $40.00 and then sell…(c) A risk-neutral competitive market maker clears the market for trading in a stock after observing the incoming orders from a noise trader and an informed trader (who perfectly knows the true value of the stock). The noise trader buys and sells 1 share of the stock with equal probability, whereas the informed trader buys the stock if the value is $14 (high) and sells the stock if the value is $5 (low). The market maker believes initially that there is a 45% probability of high value and a 55% probability of low value. What profits can the informed trader expect to make in this market?20. True or False: Both the seller of a put option and seller of a call option are exposed to unlimited losses. | Cierto o falso: tanto el vendedor de una opción de venta como el vendedor de una opción de compra están expuestos a pérdidas ilimitadas. * True | Cierto False | Falso