A stock price is currently $23. A reverse butterfly spread (le. options are sold with strike prices of K, and K. and two options with the middle strike price K₂ are purchased) is created from call options with strike prices of $20, $25, and $30. Which of the following is TRUE? Select one alternative: O The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20. The gain when the stock price is greater than $30 is the same as the gain when the stock price is less than $20. O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20. The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20

A stock price is currently $23. A reverse butterfly spread (le. options are sold with strike prices of K, and K. and two options with the middle strike price K₂ are purchased) is created from call options with strike prices of $20, $25, and $30. Which of the following is TRUE? Select one alternative: O The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20. The gain when the stock price is greater than $30 is the same as the gain when the stock price is less than $20. O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20. The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20

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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Tick all those statements on options that are correct (and don't tick those statements that are incorrect). B a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion. b. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ker where T is the expiry time. An American put option should never be exercised before the expiry time. d. In general the equation S(T) +(K-S(T)) = (S(T)-K)+ +K is valid. e. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion. C.
Consider the model of Black and Scholes. Consider the cash=or-nothing put option V (T) = 1{S(T)<= K} It pays out one unit of cash if the spot is below the strike at maturity. Evaluate the price of the option.
These three put options are all written on the same stock. One has a delta of -0.1, one a delta of -0.9, and one a delta of -0.4. Assign deltas to the three puts by filling in this table. (Negative value should be indicated by a minus sign. Round your answers to 1 decimal place.) Put Delta A 10 в 25 30
Call options on a stock are available with strike prices of $15, $17.5 and $20 before expiration date. The call premiums for each are $4, $2 and $0.5 respectively. Explain how the options can be used to create a butterfly spread. A. Construct a table showing how profit varies with stock price for the butterfly spread. B. Plot the profit with stock price for the butterfly spread. List the profit formula for each trend.
A trader creates a long butterfly spread from call options with strike prices $60, $65, and $70 by trading a total of 400 options. The call options are worth $11, $14, and $18. What is the maximum net loss (after the cost of the options is taken into account)? Select one alternative: O $300 O $100 O $400 O $200
If the stock price increases, the price of a put option on that stock ________ and that of a call option _________. decreases, increases decreases, decreases increases, decreases increases, increases
Please choose on the options and please explain
Assume a stock with an option with the information as follows. • Stock purchased price was $113.• Call option on the stock was purchased at $4. • Call option has strike price at $115.• the stock price is $117on expiration date Please explain the Call Options Payoff Diagrams below, why it plot like this (please explain step by step) . Thank you for your answering
3. A bear spread payoff has the form g(ST) = max(K₂- ST, 0) - max(K₁ – ST, 0), where 0 < K₁ < K₂. (a) (b) Sketch the payoff diagram. Use the general formula for the European option pricing function to find the time-zero option price of a bear spread.
Use the binomal option pricing model to estimate the Call price. Stock price (S) $120.00 Stock price up (Su) $170.00 Stock price down (Sd) $50.00 Strike price (K) $120.00 rf 1.0% Call price up (Cu) Call price down (Cd) D PV(B) Call price (C)
An up-and-out barrier call option with barrier B, strike price K and exercise time T has payoff H(T) = (S(T) − K) + if max {S(t)| 0 ≤ t ≤ T} < B, 0 otherwise, that is, the payoff is that of a call option if the underlying stock price does not reach or exceed the barrier B at any time up to and including time T, and 0 otherwise. For an up-and-out barrier call option with barrier B = 140, strike price K = 90 and exercise time T = 3 in the binomial model with parameters U = 0.2, D = −0.1, R = 0.1 and S(0) = 100 compute the following. (a) The option price at time 0;
Whats the profit of the "Bearish Put Spread" when stock price is $25, $30, $35, $40, $45, $50, $55, $60, and $65 respectively? Given: - Stock price = $45.00 - Current option price = 7.0 (put 35) - Current option price = 2.0 (put 45) - Exercise Price = $40.00

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