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at any point of time there are multiple exercise prices and maturity dates offered on a particular stock option
a) the higher the exercise price the more expensive the put options are
b) there are no relationships between option value and maturity dates
c)the longer the maturity date the less expensive the options are
d) the lower the exercise price the less expensive the call options are
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- 4. Answer the following questions on exotic options: (a) Discuss the differences between a combination and a spread when constructing portfolios of options. (b) Define a long strangle and represent the profit function. (c) Design a forward contract on a stock with a particular delivery price and delivery date as a combination of options on the same underlying asset.A speculative investor creates a portfolio of options written on the same underlying asset. He chooses to sell a put option with a strike of $100 and sell a call option also with a strike of $100. The two options have the same expiration. a. Sketch the payoff at maturity for a seller of a put option with a strike of $100. Carefully label the axes. b. Sketch the payoff at maturity for a seller of a call option with a strike of $100. Carefully label the axes. c. Sketch the payoff at maturity for the investor who sells both a call option and a put option each with a strike of $100. Carefully label the axes. The put option price is $14, and the price of the call option is $6. d. What is the profit at maturity for the speculative investor if the underlying asset at maturity is worth $100?2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The following table presents the data on ABC Corp.'s call options at different stock prices. Based on your understanding of exercise value and option prices, complete the table with a strike price of $24.00: Stock Price ($) 16.00 32.00 40.00 44.00 48.00 Strike Price ($) 24.00 24.00 24.00 24.00 24.00 Exercise Value ($) Market Price of Option ($) 1.56 10.10 0.00 20.00 18.40 22.60 28.00 Time Value ($) 2.10 2.40 4.00 After two weeks, the stock price of ABC Corp. increases to…
- Which one of the following statements is true? Multiple Choice O O O O A call with a strike price of $25 and a stock price of $23 has positive intrinsic value. A European style option is more valuable than an American style option. An American style out-of-the-money call option can have a positive value. A $40 put option has more intrinsic value than a $50 put option on the same underlying asset. The time value of an option is equal to the intrinsic value minus the option premium.According to the put-call parity theorem, the payoffs associated with ownership of a call option can be replicated by buying the underlying stock, borrowing the present value of the exercise price, and buying a put on the same underlying stock and with the same exercise price shorting the underlying stock, lending the present value of the exercise price, and buying a put on the same underlying stock and with the same exercise price shorting the underlying stock, borrowing the present value of the exercise price, and writing a put on the same underlying stock and with the same exercise price buying the underlying stock, borrowing the present value of the exercise price; and writing a put on the same underlying stock and with the same exercise priceThe Black–Scholes option pricing model (OPM) was developed in 1973. The creation of the Black–Scholes OPM played a significant role in the rapid growth of options trading. The derivation of the Black–Scholes Option Pricing Model rests on the concept of a riskless hedge or leveraged buyout According to the Black–Scholes Option Pricing Model, as the variance, σ2σ2, increases, the value of the call option increase or decrease Happy Orange Storage Company has a current stock price of $28.00. A call option on this stock has an exercise price of $28.00 and 0.25 year to maturity. The variance of the stock price is 0.09, and the risk-free rate is 6%. You calculate d₁ to be 0.18 and N(0.18) to be 0.5714. Therefore, d₂ will be 0.03 and N(0.03) will be 0.5120. Using the Black–Scholes Option Pricing Model, what is the value of the option? (Note: Use 2.7183 as the approximate value of e.) $1.877 $1.408 $1.971 $1.689
- The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock’s price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or “issue” new options, which is called writing options. Based on your understanding of exercise value and option prices, complete the table with a strike price of $30.00: Stock Price ($) Strike Price ($) Exercise Value ($) Market Price of Option ($) Time Value ($) 20.00 30.00 0.00 1.56 40.00 30.00 12.10 2.10 50.00 30.00 22.40 2.40 55.00 30.00 25.00 27.60 60.00 30.00 34.00 4.00 After two weeks, the stock price of ABC Corp. increases to $62.40. Suppose you purchased the shares for $40.00 and then sell…Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.What does it mean to assert that the delta of a call option is 0.7? How can a short position in 1,000 options be made delta neutral when the delta of each option is 0.7?
- Which of the following is NOT a real option? A. An abandonment option B. An expansion option C. A stock option D. An investment timing optionWhat's the key to profitable long call options? A. A large number of at-the-money call options. B. An optionable stock that goes up sufficiently within a certain period. C. An option position that breaks even early enough before expiration. D. In-the-money calls. 4A call option will cost more today if I. the underlying asset's value in today's market is lower. II. its exercise price is higher. III. the stock's current value goes up. IV. its strike price goes down.
