A trader buys a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same maturity. The call costs $3 and the put costs $4. Draw a diagram showing the variation of the trader’s profit with the asset price. Please do not copy/paste other responses that are provided elsewhere.

Q: Draw the position diagram for the straddle.

A: Straddle is an option strategy you use when you expect a high change in price of the stock but not…

Q: Please do not copy and paste what has been already posted. Show full working. Company A can borrow…

A: First, we are going to list the borrowing rates of A and B. PartyFixedFloatingA9%Prime +…

Q: To replicate a short asset position with options a trader would: Short two ATM call contracts and…

A: The correct choice is:B. Short an ATM call and long ATM putExplanation:Explanation of the…

Q: The price that the buyer of a call option pays for the underlying asset if she executes her option…

A: Option: A financial instrument that is based on the value of underlying securities, such as stocks,…

Q: Consider a sequential trade model in which a security has an uncertain value. The value V of the…

A: As the value(V) can be $170 or $250 with equal probability, then the expected price of security…

Q: 1. Draw a picture of the payoff of the option strategy at expiration as a function of the stock…

A: Here Premium paid = $11 + $20 = $31 Premium received = $8 + $ 16= $24 Thus Net premium paid = 31 -24…

Q: A trader buys a call option with a strike price of $30 for $3. Does the trader ever exercise the…

A: Solution:Call option means right to buy the underlying asset at exercise price at maturity. To…

Q: Under what circumstances does the dealer make a profit of $4?

A: NOTE: Since you have asked multiple questions, we will solve the first question for you. If you want…

Q: discuss the put-call parity of options on futures, and use it to value put options on futures.…

A: Put-call parity is a principle that applies to options trading and states that the price of a call…

Q: Choose which sentance is false.       A. When you own a call​ option, you have the right to buy the…

A: The option contracts are the derivative financial instruments that can be classified as the call…

Q: Reference the options chain for Caterpillar, Inc. (ticker: CAT) shown below. You sold one contract…

A: There are 2 parties to a call option contract.One is the call buyer, and the other is the call…

Q: If call options on USD with a strike price of AUD1.2604/USD have a premium of AUD0.0283, what is the…

A: The moment at which a business generates as much money as it is spending is known as the break-even…

Q: If a call option has a strike price of $.45 and premium cost of $.03, and at the time of the…

A: Call Option: When a call option is exercised, it commits both the buyer and the seller to purchase a…

Q: You buy one Yahoo June Call option contract with strike price $50 for premium $1.5 and sell one June…

A: Option strategies are the simultaneous, and often mixed, buying or selling of one or more options

Q: Suppose that put options on a stock with strike prices $18 and $20 cost $2 and $3.50, respectively.…

A: A put option provides the right for selling the stock at a specified price but not the obligations…

Q: Buying a unit of forward and buying a unit of put option (the underlying asset is the same, the…

A: STEP 1 A put option is a call option that gives the buyer the choice whether to sell, but not the…

Q: Consider a call option on a stock, ABC Corp. with a price of $74.20 and a strike price of $85.88.…

A: Call option is the derivative product and gives the opportunity to buy stock on the expiration but…

Q: If an investor places a sell order with a stop price. When the stop price occurs, the order will be…

A: Solution:- Stop loss means putting a limit on your loss.

Q: An order to buy or sell a security at the current price is a ______________.    Group of answer…

A: See below the definition

Q: To hedge, a user of an energy resource wants price protection from rising prices. The user decides…

A: Options are the derivative instrument that can be used by the investors to hedge their risk of loss.…

Q: 2. Suppose call and put prices are given by: Strike Call Premium Put Premium 80 22 4 100 9 21 105 5…

A: The put and call options are called as derivative securities as their prices are derived from…

Q: What does the option contract payoff diagram look like for NeedOil. Co. if it chooses to buy a call…

A: Options are the derivative contracts, there is not limit in the upside value of an option, however…

Q: • Consider a call option with a premium of $5 and a strike price of $50. • Draw a payoff and profit…

A: Long call option payoff diagram with an option premium of $5 and strike price of $50.Here, the…

Q: Currency straddle - Short position - Seller of options Construct a short straddle Put and call…

A: The objective of the question is to construct a short straddle for currency straddle where we are…

Q: Compared to long hedging, the advantage to using a call option is: A. Call options involve a…

A: Call option contract gives the contract holder a right to purchase shares or stocks at some future…

Q: A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3.…

A: Options are market securities which can be purchased or sold in anticipation of the movement of the…

Q: Consider the model of Black and Scholes. Consider the cash=or-nothing put option V (T) = 1{S(T)<= K}…

A: Premiums are the result of adding the intrinsic and time value of an option. The difference between…

Q: According to the equation and option payoff diagram in my textbook that I’ve attached, I don’t…

A: Given: An investor purchases a stock for $38 and a put for $.50 with a strike price of $35. The…

Q: Graphically show a covered call options strategy, including payoff. Explain why an investor may use…

A: A covered call is an option strategy in which an investor have a long position in underlying asset…

Q: One day, Alice and Bob observe the following option prices (assume no bid-ask spread and r=0):…

A: Price at expiryProfit/loss on long 95 CEProfit/loss on 3 short 105 CEProfit/loss on 2 long 110…

Q: Demonstrate how a margin account operates for both the long and the short futures position using the…

A: Long position means we will buy futures now and sell them in future expecting the price increased.…