Problem 17: Option (15%) The stock price of Johnson & Johnson (JNJ) is trading at $160 per share in the beginning of Jan 2024. You heard that JNJ develop a new medicine for cancer. The medicine is very likely to be formally approved by FDA in 3 months. It will cause a rise of JNJ share's price (likely $170~$180). Yet experts point out the effect of this medicine may be limited so it is not likely to increase JNJ share's price a lot (larger than $180). Suppose there are following European equity options (with 3-month maturity from now) available in the market. Design an option strategy which is likely to utilize this opportunity. Option Type Strike Price Premium TSLA March 160 Call $160 $14.2 TSLA March 180 Call $180 $10.2 TSLA March 200 Call $200 $5.3 TSLA March 160 Put $160 $3.4 TSLA March 180 Put $180 $12.3 TSLA March 200 Put $200 $14.9 1.Describe what your best strategy is (Hint: think of a strategy we learned in class). 2.Calculate your returns when JNJ price rises to $175. 3. What is the break-even prices of this strategy?
Problem 17: Option (15%) The stock price of Johnson & Johnson (JNJ) is trading at $160 per share in the beginning of Jan 2024. You heard that JNJ develop a new medicine for cancer. The medicine is very likely to be formally approved by FDA in 3 months. It will cause a rise of JNJ share's price (likely $170~$180). Yet experts point out the effect of this medicine may be limited so it is not likely to increase JNJ share's price a lot (larger than $180). Suppose there are following European equity options (with 3-month maturity from now) available in the market. Design an option strategy which is likely to utilize this opportunity. Option Type Strike Price Premium TSLA March 160 Call $160 $14.2 TSLA March 180 Call $180 $10.2 TSLA March 200 Call $200 $5.3 TSLA March 160 Put $160 $3.4 TSLA March 180 Put $180 $12.3 TSLA March 200 Put $200 $14.9 1.Describe what your best strategy is (Hint: think of a strategy we learned in class). 2.Calculate your returns when JNJ price rises to $175. 3. What is the break-even prices of this strategy?
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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am. 162.
Transcribed Image Text:Problem 17: Option (15%)
The stock price of Johnson & Johnson (JNJ) is
trading at $160 per share in the beginning of Jan
2024. You heard that JNJ develop a new medicine
for cancer. The medicine is very likely to be formally
approved by FDA in 3 months. It will cause a rise of
JNJ share's price (likely $170~$180). Yet experts
point out the effect of this medicine may be limited
so it is not likely to increase JNJ share's price a lot
(larger than $180). Suppose there are following
European equity options (with 3-month maturity
from now) available in the market. Design an option
strategy which is likely to utilize this opportunity.
Option Type
Strike Price Premium
TSLA March 160 Call
$160
$14.2
TSLA March 180 Call
$180
$10.2
TSLA March 200 Call
$200
$5.3
TSLA March 160 Put
$160
$3.4
TSLA March 180 Put
$180
$12.3
TSLA March 200 Put
$200 $14.9
1.Describe what your best strategy is (Hint: think of
a strategy we learned in class).
2.Calculate your returns when JNJ price rises to
$175.
3. What is the break-even prices of this strategy?
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