ABC stock is currently trading at a market price (S) of $50. You do not own the stock, but you are long a put option on 1 share with a strike price (X) of $43. The cost put (premium) was $2. A. The value of an option is composed of Intrinsic Value and Time Value. How you split the $2 premium up between these two components? i. Time Value : Value = A. Using Excel or drawing by hand, create a payoff diagram for this put option using a range of $30 to $60 along the x-axis. Show on the graph where the 1) current price (S), 2) strike price (X), and 3) breakeven point. A. Compute the profit or loss of the strategy if the stock price at expiration is equal to: and ii. Intrinsic 1č1 $33: 1C2 $43: 1C3 $49: 1C4 $53: 1C5 $59:
ABC stock is currently trading at a market price (S) of $50. You do not own the stock, but you are long a put option on 1 share with a strike price (X) of $43. The cost put (premium) was $2. A. The value of an option is composed of Intrinsic Value and Time Value. How you split the $2 premium up between these two components? i. Time Value : Value = A. Using Excel or drawing by hand, create a payoff diagram for this put option using a range of $30 to $60 along the x-axis. Show on the graph where the 1) current price (S), 2) strike price (X), and 3) breakeven point. A. Compute the profit or loss of the strategy if the stock price at expiration is equal to: and ii. Intrinsic 1č1 $33: 1C2 $43: 1C3 $49: 1C4 $53: 1C5 $59:
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:ABC stock is currently trading at a market
price (S) of $50. You do not own the stock, but
you are long a put option on 1 share with a
strike price (X) of $43. The cost put (premium)
was $2.
A. The value of an option is composed of
Intrinsic Value and Time Value. How you split
the $2 premium up between these two
components?
i. Time Value
Value
and ii. Intrinsic
A. Using Excel or drawing by hand, create a
payoff diagram for this put option using a
range of $30 to $60 along the x-axis. Show
on the graph where the 1) current price (S), 2)
strike price (X), and 3) breakeven point.
A. Compute the profit or loss of the strategy if
the stock price at expiration is equal to:
1č1 $33:
1C2 $43:
1C3 $49:
1C4 $53:
1C5 $59:
Transcribed Image Text:A. What is the strategy's maximum gain?
A. What is the strategy's maximum loss?
A. Looking back at the Game Stock situation, is
the strategy described above more consistent
with?
1) Wall Street Bets traders buying
options, or 2) Hedge funds shorting
the stock?
A. List 1 advantage does your strategy have over
the corresponding strategy (or) you
associated it with (WSB buying options or
hedge funds shorting the stock, whomever
you selected)?
A. List 1 disadvantage does your strategy have
over the corresponding strategy (or) you
associated it with (WSB buying options or
hedge funds shorting the stock)?
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