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 are pricing options with the following characteristics: •Current stock price (St): $35.60 •Exercise price (X): $50 •Time to expiration (T-t): 9 months •Risk-free rate (rf): 3.25% •Volatility (0): 45% (a): What is the Black-Scholes value of call option? In your hand-written solution, provide the calculations of d1,d2, and the final call price. Use Excel or another spreadsheet program to compute the values of N(d1) and N(d2). See the notes for details. (b): Using put-call parity, what is the value of a put option? For this case, assume continuous compounding, which implies that PVt(X)=e-r(T-t).X.
solve a,b,c and d please. round to nearest dollar
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. (a) Calculate how much of the option premium is due to intrinsic value and how much is due to time value (b) Calculate the net profit on the option if DBS’s share price increases to $40 and you exercise the option. (c) Calculate net profit if DBS’ share price decreases to $20. (d) Compute the Theoretical ex-rights Price (TERP) of SIA. (e) If you are a shareholder of SIA, what are your options with regards to the rights issued to you?
You have written a call option on Walmart common stock. The option has an exercise price of $81, and Walmart’s stock currently trades at $79. The option premium is $1.60 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $77 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price increases to $87 at expiration of the option and the option holder exercises the option?
Suppose you buy a one-year European call option on Apple with an exercise price of $100 and sell a one-year put option with the same exercise price. The current stock price is $100, and the interest rate is 10%. Draw a position diagram showing the payoffs from your investments. How much will the combined position cost you?
Suppose you own a put option on Apple stock with a strike price of $150. Suppose it is the expiration date of the option and the current stock price of Apple is $75. What payoff will you receive from making an optimal exercise decision on your option? 1. -$75 2. $0 3. $75
Consider a bearish option strategy of buying one $50 strike put for $7, selling two $42 strike puts for $4 each, and buying one $37 put for $2. All options have the same maturity. Calculate the final profit per share of the strategy if the underlying is trading at $33 at expiration. 1. $1 per share 2. $2 per share 3. $3 per share 4. $4 per share
Suppose that a European call option to buy a share for $ 90.00 costs a . Under what circumstances will the SELLER of the option make a profit ? \$4.00 and is held until maturity . ( DRAW the GRAPH to show ALL answers ) b . when will the option be exercised ( at what price , show on graph ) ? c . What is the Maximum profit for SELLER and at what stock price ? d . What is the Maximum loss for SELLER and at what stock price ? e . What will be profit / loss for SELLER if St is 150 ?
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You think that there is an arbitrage opportunity on the market. The current stock price of Wesley corp. is $20 per share. A one- year put option on Wesley corp. with a strike price of $18 sells for $3.33, while the identical call sells for $7. The one-year risk- free interest rate is 8%. Assuming that the put option is fairly priced, compute the fair price of the call option and explain what you must do to exploit this arbitrage opportunity and what will be your gain.