7. The current price of one share of stock is 70.00. The stock pays no dividends. Therisk-free rate is 3%. One year call and put options on the stock are available forvarious strike prices. Mr. Smith observes the following prices of the one yearoptions:Strike PriceK₁K₂Call Option6.502.00Put Option1.034633.32775Smith buys a call spread consisting of one long call with a strike price of Ki andone short call with a strike price of K2. (K2 > K1).a. What is the maximum possible payoff of Smith's portfolio?b. What is the minimum profit of Smith's portfolio?

A bear call spread is an options trading strategy that is used when an investor expects a moderate…

7. The current price of one share of stock is 70.00. The stock pays no dividends. The risk-free rate is 3%. One year call and put options on the stock are available for various strike prices. Mr. Smith observes the following prices of the one year options: Strike Price K₁ K₂ Call Option 6.50 2.00 Put Option b. What is the minimum profit of Smith's portfolio? 1.03463 3.32775 Smith buys a call spread consisting of one long call with a strike price of Ki and one short call with a strike price of K2. (K2 > K₁). a. What is the maximum possible payoff of Smith's portfolio?

7. The current price of one share of stock is 70.00. The stock pays no dividends. The risk-free rate is 3%. One year call and put options on the stock are available for various strike prices. Mr. Smith observes the following prices of the one year options: Strike Price K₁ K₂ Call Option 6.50 2.00 Put Option b. What is the minimum profit of Smith's portfolio? 1.03463 3.32775 Smith buys a call spread consisting of one long call with a strike price of Ki and one short call with a strike price of K2. (K2 > K₁). a. What is the maximum possible payoff of Smith's portfolio?

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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A one-year call option on a stock with a strike price of $30 costs $3; a one-year put option on the sto of $30 costs $4. Suppose that a trader buys two call options and one put option. The breakeven sto the trader makes a profit is A) $28 B $20 C) $26 D $25
Suppose that a trader buys two call options and one put option. A one-year call| option on a stock with a strike price of $36 costs $1.90. A one-year put option on the stock with a strike price of $36 costs $1.68. What is the breakeven stock price rounded to the nearest cents , below which the trader makes a profit? Round your final result to the nearest cents and input one number only, without units or percentage sign [%], using the dot [.] to separate decimals. Your Answer: Answer
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
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.
Q1. You have purchased a call option on Johnson & Johnson common stock. The option has an exercise price of $57.50 and J & J’s stock currently trades at $58.93. The option premium is $2.17 per contract. Calculate your net profit on the option if J & J’s stock price rises to $62.50 and your exercise the option. Calculate your net profit on the option if J & J’s stock price falls to $58.00 and your exercise the option. If J & J’s stock price falls to $58.00 show that it is more profitable to exercise than not exercise the option you have purchased.
You purchase 20 call option contracts with a strike price of $110 and a premium of $1.85. Assume the stock price at expiration is $119.12. a. What is your dollar profit? (Do not round intermediate calculations.) Dollar profit S 14,540 b. What is your dollar profit if the stock price is $105.07? (A negative value should be indicated by a minus sign. Do not round intermediate calculations.) If the stock price is $105.07, the call is worthless so the dollar profit is $
Suppose an investor purchases a 3-month call option and a 3-month put option on ABC stock. The strike of the call option is $60; the strike of the put option is $65. Suppose the price of the put option is $4.20, the price of the call option is $3.50. a. Suppose the price of ABC stock at option expiry is $62 per share. What is the payoff and profit/loss on both options positions? b. What is the maximum profit the investor could have earned on his call option position? On the put position? Edit Minit
3. A stock sells for $110. A call option on the stock has an exercise price of $105 and expires in 43 days. If the interest rate is 0.11 and the standard deviation of the stock’s return is 0.25. a) Calculate the call using the Black-Scholes model b) What would be the price of a put with an exercise price of $140 and the same time until expiration? c) How does an increase in the volatility and interest rate changes affect the underlying stock’s return on an option’s value? Explain.
The stock price of BAC is currently $150 and a put option with strike price of $150 is $10. A trader goes long 300 shares of BAC stock and long 3 contracts of the put options with strike price of $150. a. What is the maximum potential loss for the trader?[x](sample answer: $105.75)b. When the stock price is $161 on the expiration, what is the trader’s net profit?[y](sample answer: $105.75)
A one-year call option on a stock with strike price of $90 costs $6 and a one-year put option on the same stock with strike price of $90 costs $7. Suppose that a trader buys one call option and one put option. a. What is the breakeven stock price, above which the trader makes a profit? b. What is the breakeven stock price, below which the trader makes a profit?
You wrote a call option on the stock of PIGN at a strike price was $55.55. The premium you received was $5.90. On the option expiration date CLAY is trading for $77.45. What is your profit on this contract? (Enter you answer in $ accurate to two decimal places.)
You have purchased a put option on Pfizer common stock. The option has an exercise price of $45 and Pfizer's stock currently trades at $47. The option premium is $0.60 per contract. a. What is your net profit on the option if Pfizer's stock price does not change over the life of the option? b. What is your net profit on the option if Pfizer's stock price falls to $41 and you exercise the option? (For all requirements, negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) a Net profit b. Net profit per share per share

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