Given:-Pears Inc. stock trades at $86/share-European options on the stock are available:OptionsCallPutStrike Price$90$82Premium$2$4Maturity1 year1 year-an investment specialist makes a suggestion: to sell one call option and boy one put option on Pears Inc stockRequired:-draw the profit diagram for the strategy suggesting above, including labels

A short call refers to the strategy of selling a call option, which gives the seller the obligation…

Answered: Given: -Pears Inc. stock trades at…

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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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
The database is mentioned in the attachment:Ques) Draw a profit diagram for an investor in a call option with an exercise price of 64 that expires in March and explain the diagram. Undertake the same analysis for the writer of the call. Comment on the contention that options are a zero sum game for the writer and investor in options.
Ningbo Industrial Concepts Incorporated Initial stock price $115.00 Exercise price $115.00 Call price $4.75 Put Price $4.50 Required: Using the information in the table above, please calculate dollar value of the following option strategies. Use this calculated dollar value to determine the profit of each strategy at various stock prices. (Use cells A3 to B6 from the given information to complete this question. Negative answer should be input and displayed as a negative value. All other answers should be input and displayed as positive values.) Ningbo Industrial Concepts Incorporated Dollar Value of Strategy as a Function of Current Stock Price Strategy $95.00 $105.00 $115.00 $125.00 $135.00 Straddle Strip Strap Ningbo Industrial Concepts Incorporated Rate of Return…
With formulas, no tables Exploring six-month call and put options for a stock with an exercise price of $20 and a call premium of $4 per contract, your consideration involves the potential purchase of 20 call options. Let's analyze the following scenarios: a) In the context of contemplating the acquisition of 20 call options, visualize the profit and losses at the expiration date of your position, disregarding any transaction costs. Calculate the potential gain if the stock price stands at $20 in six months. Determine the break-even point and assess the potential gain if the stock price rises to $27 in six months. b) Examine the profit and losses for the writer (seller) of the call option. What constitutes the maximum profit for the call writer, and what represents the maximum loss for the call writer? c) Shift attention to a put option for the same stock, sharing the same strike price and maturity, traded on the market at a price of $3. Present the profit and losses at the expiration…
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.
Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state). Required: = a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end- of-year stock prices, us $135 (up state) and dSo $115 (down state)? = = b. What do you conclude about the hedge ratio as the option becomes progressively more in the money? × Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)? Note: Round your answers to 3 decimal places. Exercise Hedge Ratio Price $ 135 0.500 127 0.500 × 120 0.500 × $ 115 0.500 ×
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)?
1. Three months ago an investment company bought for £8 a call option on a stock with an exercise price of £136. If the stock price at expiration of this option is £147. Select which of the following best describes the option value, the decision of the Investment Company and the return on investment thereon. A. Option value Decision Profit / (loss) % Exercise price – Stock price Exercise 37.5% B. Option value Decision Profit / (loss) % Stock price – Exercise price Don’t Exercise 2.2% C. Option value Decision Profit / (loss) % Exercise price – Stock price Exercise 2.2% D. Option value…
Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $115 (down state). Required: What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $115 (down state)? What do you conclude about the hedge ratio as the option becomes progressively more in the money?
Give typing answer with explanation and conclusion The XYZ Corporation stock currently sells for $52/share. The premium for a put option expiring in four weeks is $2.07. Suppose you buy 5 contracts of this put option. What is your maximum gain? (Hint: One option is called a contract, and each contract represents 100 shares of the underlying stock. Exchanges quote options prices in terms of the per-share price, not the total price an investor pays to own the contract.) A) $22,715 B) $26,000 C) $24,965 D) $23,750
Give typing answer with explanation and conclusion The shares of ABC Ltd are currently selling at Shs.290 each at the stock exchange. The exercise price for a 6months call option is Shs260.The prevailing risk free rate is 12%.The variance of ABC ltd share price has been 15%. Required -Determine the value of such an option using Black & Scholes option valuation.
Let there exist a non-dividend-paying stock, A, which has a current price of $80. Let there exist another stock, B, which has a current price of $100. Stock B will continuously pay dividends at a dividend yield of x. A one-year European exchange call option with underlying asset A and strike asset B is sold for $5, while a one-year European exchange put option with underlying asset A and strike asset B is sold for $15. 12% is the continuously compounded, risk-free interest rate. Calculate the value of stock B's dividend yield, x.

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