An investor engages in the following series of transactions: (1) Purchase 1 call option contract of AMD with a strike price of 50 at a price of $4. (2) Purchase 1 put option contract of AMD with a strike price of 50 at a price of $3. What is the maximum possible loss the investor could incur from this options strategy? $700 $100 O $300 Infinite O $400

An investor engages in the following series of transactions: (1) Purchase 1 call option contract of AMD with a strike price of 50 at a price of $4. (2) Purchase 1 put option contract of AMD with a strike price of 50 at a price of $3. What is the maximum possible loss the investor could incur from this options strategy? $700 $100 O $300 Infinite O $400

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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MetaAn investor buys a put option contract for S of IBM Inc. stock, with a contract size of ton shares. The stock price is currently $35, and the exercise price is $10. What are the investor's expectations, and under what conditions does the investor make a profit? (1) Is this put option in-the-money? ii) Under what circumstances will the option be exercised? (iv) If at the expiration of the option, the stock price is $ so calculate the profit/loss of the investment and explain what the transactions are? Shall the investor exercise this option?
An investor owns a put option with a strike price of $ 20, the premium paid was $ 2.The stock price on the option expiration date is $ 25, which is the below statements is correct? The intrinsic value of the option is-$2 The loss on the option is $ 7 The option should be allowed to lapse The profit on the option is $ 3
Assume interest rate is zero. In a shout call option the strike price is $30. The holder shouts when the asset price is $40. What is the payoﬀ from the option if the ﬁnal asset price is $35? A. $0 B. $5 C. $10 D. $15
The investor X decides to: Buy a call option for $10 with $100 as strike price Buy a call option for $15 with $90 as the strike price Sell a put option for $10 with $100 as the strike price Buy a put option for $15 with $120 as the strike price a)Calculate the result of the investor if the market price is $60 b)Calculate the result of the investor if the market price is $160 c)Represent the results of the investor for both cases a) and b) in the same figure
If put options on USD with a strike price of AUD6.9/USD have a premium of AUD4.3, what is the break- even price (BEP) for a buyer or a seller of these options? Assume that there are no brokerage fees. Question Answer a. The buyer's BEP is AUD 2.6000 and the seller's BEP is AUD 11.2000 b. The buyer's BEP is AUD 2.6000 and the seller's BEP is AUD 2.6000 c. The buyer's BEP is AUD 11.2000 and the seller's BEP is AUD 11.2000 d. The buyer's BEP is AUD 11.2000 and the seller's BEP is AUD 2.6000 e. The buyer's BEP is AUD 6.9000 and the seller's BEP is AUD 11.2000
2) You enter into a ‘Call’ Option contract with a strike price of $20. This contract will expire in 31st of March 2021. On 31st of March, you realise that the underlying share price is $28 . a. Will you exercise this contract? Why or why not? b. Is this contract ‘In-the-Money’ or ‘Out-Of-the-Money’?
Case:As a speculative investor, you can make profits by combining two option trades. Assume that you expect low volatility for the Delivery Hero share (currently standing at € 104.50). Combine two of the following four possible option trades, all related to Delivery Hero stock:- (1.) Long Call or (2.) Short Call as of 16.12.22, strike price € 105, option price € 5- (3.) Long Put or (4.) Short Put as of 16.12.22, strike price € 104, option price € 4. a) Which two of these four option trades are to be chosen?b) What is the maximum profit of the speculative investor in the example you have chosen?c) At which price or in which price range of the Delivery Hero share is the maximum profit achieved?d) In which price range is the speculative investor at all in the profit zone (i.e. where are the break-even points)?
2. Calculate the put premium according to put-call parity which gives no arbitrage opportunity. Explain what transaction would you do if the put premium is below/above the put premium you calculated. European call option premium: c = $2 Stock price today: So- $30 Life of option: T=0.5 Risk-free rate for maturity T with continous compounding: r= 8% Strike price: K= Decide on the K value yourself (carefully). No dividends paid during life of option.
1.) The option is currently a.) In-the-money b.) At-the-money c.) Out-the-money 2.) In/At/Out- the money by _____ pesos. 3.) What is the Intrinsic Value
An option's cost (premium) before expiration reflects: A. The Expected Value of any dice roll or - The Expected Cost of buying dice to roll 1000 times B. The Expected Value based on the history of prices for that asset or - The Expected Cost of Hedging something similar C. The Expected Value the Owner of the option has already spent on it or - The Expected Cost of the buyer Hedging Through the option's Life D. The Expected Value of the Payoff at Maturity or - The Expected Cost of Hedging Through the option's Life
1. The option is currently A. In-the-moneyB. At-the-moneyC. Out-the-money 2. Determine the In/At/Out- the money by ____ 3, Determine the Intrinsic Value
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