Problem 5: Option Strategy: Bear SpreadSuppose you buy one Texas Instruments August 85(strike price) put contract quoted at $8.50 per shareand write one Texas Instruments August 80 (strikeprice) put contract quoted at $6 per share. The currentprice of a share of Texas Instruments stock is $95. If,at expiration, the price of a share of Texas Instrumentsstock is $79, what would your profit/loss be? (Optionsare sold in groups of 100 shares and a premium is paidfor each of those shares). In addition, please draw thepayoff graph of this strategy and explain when you willuse this strategy. (x axis is the stock price and y axis isthe bear spread profit)

Bear Spread Strategy for Texas Instruments Options Given Information:Buy one August 85 put contract…

Answered: Problem 5: Option Strategy: Bear Spread…

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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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 ?
Don't table
1. Strike = $60 Put = $8 / option Call = $10 / option Probable market values at maturity: 30, 40, 50, 60, 70, 80, 90. Size of contract: one share Required: a) Supposing that the market is on the rise and you are an options buyer, show the net results for each market value and graph them. b) Supposing that the market is on the rise and you are an options seller, show the net results for each market value and graph them. c) Supposing that the market is on the fall and you are an options buyer, show the net results for each market value and graph them. d) Supposing that the market is on the fall and you are an options seller, show the net results for each market value and graph them.
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.
Basic Option Strategies Profit Computation Assume the below prices for calls and puts: Call Put Strike Jul Aug Oct Jul Aug Oct 165 2.7 5.25 8.1 2.4 4.75 6.75 170 0.8 3.25 6 5.75 7.5 1. Buy one August 170 call contract. Hold it until expiration. lIdentify the breakeven stock price at expiration. What is the profit/loss if ST=190? What is the maximum profit? 2. Buy one October 165 put contract. Hold it until the options expire. Identify the breakeven stock price at expiration. What is the Maximum possible loss from the transaction? What is the profit/loss if ST=185
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
$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 !!!
Solve question b
Profit on Option You have purchased a call option contract on Dash common stock. The option has an exercise price of $32.00 and Dash’s stock currently trades at $30.00. The option premium is quoted at $2.20. Calculate your net profit on the option contract if Dash’s stock price rises to $35.00 and you exercise the option. Calculate your net profit on the option contract if Dash’s stock price rises to $33.00 and you exercise the option. c-1. If the stock price is $31.00, what would be the gain or loss if you exercise or not exercise the option. c-2. Based on your answers above would it be more profitable to exercise the option or not exercise the option?

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