Option Payoffs. Suppose that you wish to make a bet on Alibaba (BABA) as follows. You will (a) buy two March 15 calls struck at K = $65 at $10.62 per call. (b) short two March 15 calls struck at K $70 at $6.95 per call, and = and (c) short two March 15 calls struck at K $80 at $2.31 per call, = (d) buy two March 15 calls struck at K = $85 at $1.17 per call. The current price of BABA is $74.63. For the purpose of this problem, assume the calls are European (in fact, standard single name options are American) and assume you can buy a call on one share (in fact, call options contracts are options on 100 shares.) (a) Find the price of this option strategy on a per share basis. Put differently, how much capital at t = 0 do you need to buy this portfolio if we ignore any margin requirements. Note: when you short the calls, you receive the premium upfront - this is equivalent to a negative price. Be careful to get all of the signs correct! Solution:

Option Payoffs. Suppose that you wish to make a bet on Alibaba (BABA) as follows. You will (a) buy two March 15 calls struck at K = $65 at $10.62 per call. (b) short two March 15 calls struck at K $70 at $6.95 per call, and = and (c) short two March 15 calls struck at K $80 at $2.31 per call, = (d) buy two March 15 calls struck at K = $85 at $1.17 per call. The current price of BABA is $74.63. For the purpose of this problem, assume the calls are European (in fact, standard single name options are American) and assume you can buy a call on one share (in fact, call options contracts are options on 100 shares.) (a) Find the price of this option strategy on a per share basis. Put differently, how much capital at t = 0 do you need to buy this portfolio if we ignore any margin requirements. Note: when you short the calls, you receive the premium upfront - this is equivalent to a negative price. Be careful to get all of the signs correct! Solution:

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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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.
After graduation, you plan to work for Asia Corporation for 12 years and then start your own business. You expect to save and deposit Php7,500 a year for the first 6 years (n = 1 through n = 6) and Php15,000 annually for the following 6 years (n = 7 through n = 12). The first deposit will be made a year from today. In addition, your grandfather just gave you a Php25,000 graduation gift which you will deposit immediately (n = 0). If the account earns 8% compounded annually, how much will you have when you start your business 12 years from now? A.Php228,145 B. Php250,712 C. Php260,302 D. Php263,907 E. Php277,797
Select all that are true with respect to historical data on risk and return in the U.S. financial markets since about 1926, Group of answer choices A portfolio of small stocks has earned higher returns than large stocks, with less risk A portfolio of small stocks has earned higher returns that large stocks, with higher risk Stocks have outperformed government bonds, albeit with higher risk With respect to a diversified stock portfolio, the longer the holding period, the higher the risk. With respect to a diversified stock portfolio, the longer the holding period, the lower the risk.
Using put-call parity, if the price of an At-the-Money Call option maturing in 1 day is $3.14, what is the price of an of an At-the-Money Put option maturing in 1 day (give an approximation)? A. $0.95 B. $2.86 C. $3.14 D.$3.26
Given the following data, show the profit from a strategy involving a straddle for the put, call and combined position. The price of a European call and put option are $5 and $6 respectively. Both of the options have a strike price of $30. Explain why a trader might be willing to enter into a straddle. Please show all work. Please use four decimal places for all calculations.
The investor Y decides to: Buy a call option for $5 with $200 as strike price Sell a put option for $10 with $100 as strike price a)Calculate the result of the investor if the market price is $60 b)Calculate the result of the investor if the market price is $260 c)Represent the results of the investor for both cases a) and b) in the same figure
An investor buys a 6-month European call option with an exercise price of $35 for $6, and sells a 6-month European call option with an exercise price of $40 for $4. a) What kind of a spread does this strategy create? Answer in terms of “Bull Spread” versus “Bear Spread”. b) Calculate both the total payoff and profit on this strategy at the expiration of the options. Please use a Table (as in the class notes) to identify the payoff and profit.
Please show step by step how to solve this AMT is currently trading at $110/share. You bought 4 CALL-option contracts on AMT with a strike price of $100 for $26.0 each and sold 4 CALL - option contracts on AMT with a strike price of $130 for $7.0 each. a. What will be your total $ and % gain/loss if AMT price is $115 at the expiration date?b. What will be your total $ and % gain/loss if AMT price is $135 at the expiration date?c. What will be your total $ and % gain/loss if AMT price is $100 at the expiration date?
You purchase one put option contract on AMD with an exercise price of $100 for a premium of $3.7. You hold the option until the expiration date, when AMD sells for $108 per share. One contract is on 100 shares of the underlying stock. Compute your profit. Your Answer: Answer
The investor X decides to: Buy a call option for $10 with $100 as strike price Buy a call option for $15 with $90 as the strike price Sell a put option for $10 with $100 as the strike price Buy a put option for $15 with $120 as the strike price a)Calculate the result of the investor if the market price is $60 b)Calculate the result of the investor if the market price is $160 c)Represent the results of the investor for both cases a) and b) in the same figure
If put options on USD with a strike price of AUD6.9/USD have a premium of AUD4.3, what is the break- even price (BEP) for a buyer or a seller of these options? Assume that there are no brokerage fees. Question Answer a. The buyer's BEP is AUD 2.6000 and the seller's BEP is AUD 11.2000 b. The buyer's BEP is AUD 2.6000 and the seller's BEP is AUD 2.6000 c. The buyer's BEP is AUD 11.2000 and the seller's BEP is AUD 11.2000 d. The buyer's BEP is AUD 11.2000 and the seller's BEP is AUD 2.6000 e. The buyer's BEP is AUD 6.9000 and the seller's BEP is AUD 11.2000
$80. The call premium is $6 and the put premium is $8. To keep thìngs simple, you can assume each contract allows the holder to buy or sell 13) You buy one call contract and also buy one put contract, both with the strike price of one (rather than the typical 100) share of the underlying stock. a. Compute the payoff to your option position if the stock price is $92 when the options expire. b. Compute the profit you made if the stock price is $92 when the options еxpire. c. What would happen to the value of your position if the volatility of returns for the underlying stock increases a day after you bought the call and the put? Please explain your answer for full credit. E FC MacBook Pro I A !!!

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