Graph the profits and losses associated with writing a call option on a security with a strike price of $60 and a premium of $5. A) Suppose that you own 100 shares of the company in which you wrote the option in this question. If you purchase these shares at $50 what will your net profit/loss position look like. Now over, say share prices from $40 to $80? Construct a table and graph the situation.

Graph the profits and losses associated with writing a call option on a security with a strike price of $60 and a premium of $5. A) Suppose that you own 100 shares of the company in which you wrote the option in this question. If you purchase these shares at $50 what will your net profit/loss position look like. Now over, say share prices from $40 to $80? Construct a table and graph the situation.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30. (d) Construct a payoff function to graphically illustrate your profit level when DBS’s share is $20, $30 and $40, and indicating the share price for you to breakeven for this long position. (e) What must the share price be for the option to be at the money?
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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 )
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