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 ×
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?
5 Construct payoff tables or payoff diagrams on expiration to show what position in IBM puts, calls and/or underlying stock best expresses the investor's objectives described below. Assume IBM currently sells for $100. Make appropriate assumptions about the strike prices of options in each case. Ignore the cost of options. a/ An investor wants the position to be at least worth $75. Further the investor believes that the IBM stock price will go up but will at most reach $140.

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