ABC stock is currently trading at a marketprice (S) of $50. You do not own the stock, butyou are long a put option on 1 share with astrike price (X) of $43. The cost put (premium)was $2.A. The value of an option is composed ofIntrinsic Value and Time Value. How you splitthe $2 premium up between these twocomponents?i. Time ValueValueand ii. IntrinsicA. Using Excel or drawing by hand, create apayoff diagram for this put option using arange of $30 to $60 along the x-axis. Showon 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 ifthe stock price at expiration is equal to:1č1 $33:1C2 $43:1C3 $49:1C4 $53:1C5 $59: A. What is the strategy's maximum gain?A. What is the strategy's maximum loss?A. Looking back at the Game Stock situation, isthe strategy described above more consistentwith?1) Wall Street Bets traders buyingoptions, or 2) Hedge funds shortingthe stock?A. List 1 advantage does your strategy have overthe corresponding strategy (or) youassociated it with (WSB buying options orhedge funds shorting the stock, whomeveryou selected)?A. List 1 disadvantage does your strategy haveover the corresponding strategy (or) youassociated it with (WSB buying options orhedge funds shorting the stock)?

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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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3 You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock - $77 price = Exercise price = $75 Risk-free rate = Option maturity = 5 months Standard deviation of annual stock returns Call price Put price $ $ 3.4% per year, compounded continuously = 59% per year 3.61 x 0.56 X 1
There are various ways to calculate the price of a call option using the Black-Scholes model. Below is a spreadsheet that breaks the required formulas into pieces to make it easy to work with. Column (1) shows the various inputs. The first five cells are the required inputs for a non-dividend paying stock. The remainder of the cells are the formula parts. Column (2) shows a solved problem for a stock selling for $50, with an exercise price of $45, an interest rate of 6 percent, 90 days (one-quarter of a year), and a standard deviation of .235. Column (3) shows how the cell values in Column (2) were calculated. Once you have this set up in the spreadsheet, you can calculate the price of any call option by substituting the correct values in the first five cells of column (2). Spreadsheet begins in row 2. Calculating a Call Price Using the Black-Scholes Model S 50 45 R 0.06 T 0.25 S 0.235 In(S/X) 0.105361 LN(B2/B3) r+0.50? 0.087613 B4+(,5)*(B6)^2 o(t)½ 0.1175 В6*((B5)^0.5) dl 1.083095…
You purchased a call option on TSLA with an exercise price of $180 for a premium of $5.0 and held it until the expiration date. What is your profit (per share) if the stock sells for $192 on the expiration date? Enter your answer without the dollar sign. Your Answer: Answer
Draw the payoff of a call option on an Apple stock with a current price of $90, a strike price of $110 and the cost of the option being $10. Make sure you label your graph properly. (Use Excel to create your graph)
The current market price of a share of a stock is $70.81. If a call option on this stock has a strike price of $75, the intrinsic value of the call is $______. (Note: answer must be accurate to the nearest cent).
Only typing. .... . A strip is a variation of a straddle involving two puts and one call. Construct a short strip using the August 170 options. The price of the call option is $8.10 and the price of the put option is $6.75. Hold the position until the options expire. Determine the profits and graph the results. Identify the breakeven stock prices at expiration and the minimum profit.
A stock has a price of $73, which can later be $77 or $69 with equal probabilities. The options with exercise price $77 are valued at $1.53 for the call and $1.73 for the put. a. Calculate the gains/losses/returns for the stock. b. Calculate the gain/losses/returns for a covered call and protective put portfolio.
You write a put with a strike price of $60 on stock that you have shorted at $60 (this is a “covered put”). What are the expiration date profits to this position for stock prices of $50, $55, $60, $65, and $70 if the put premium is $1.80? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock price Short profit Put payoff Put profit Net profit $50.00 $55.00 $60.00 $65.00 $70.00
Bha
Assume that after one time period, the value of a stock of 80 would be either 120 Or 60. Suppose that, for any y, at a cost of Cy, one can purchase at a time-0 the option to buy y shares of the stock at time-1 at a price of 90 per share. For what values of C, no-arbitrage will be possible? Using the arbitrage theorem, find the value of C for the data given for your group in the above question Derive the first order partial derivative of the Black-Scholes option cost C with respect to r. (FOCUS ONLY OM THE LAST TWO )
A stock priced at $50 has two possible outcomes, either increases to $60 or decreases to $42. If the stock goes up, the payoff of the stock's call option = S5. But, if the stock price declines to $42, the calls will expire worthless. Given these two possible outcomes, what is the Hedge Ratio of the Call option? Round your answer to two decimals. The listed correct answer was 0.28. I could not find a way to get this.
You simultaneously write a put and buy a call, both with strike prices of $45, naked, i.e., without any position in the underlying stock. What are the expiration date payoffs to this position for stock prices of $35, $40, $45, $50, and $55? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.) $ $ $ $ $ Stock price 35 40 45 50 55 Put payoff Call payoff Total payoff

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