Question 5 (20 points) Suppose that a trader writes three naked put option contracts, with each contract being on 1 shares of underlying stock. The option price is $3 on each share, the time to maturity is six months, and the strike price is $60. a. Write out the formula and draw the graph for the trader's profit on each put option on 1 share of stock. ( b. What is the margin requirement for the trader if the current stock price is $58? (5 marks) C. How would the answer to (b) change if the trader is buying instead of writing the options? (5 marks
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- Suppose that a trader writes three naked put option contracts, with each contract being on 100 shares of underlying stock. The option price is $3 on each share, the time to maturity is six months, and the strike price is $60. a. Write out the formula and draw the graph for the trader's profit on each put option on 1 share of stock. b. What is the margin requirement for the trader if the current stock price is $58? C. How would the answer to (b) change if the trader is buying instead of writing the options?Suppose you write the following put option (1 option, not 1 contract containing 100 options). What is the payoff and profit at expiration if the stock price is $75? Put Strike Symbol 80 ABC210621C00040000 Last 3.32 a. payoff is -5.00; profit is 1.68 X b. payoff is -5.00; profit is 3.32 c. payoff is 0; profit is 0 d. payoff is -5.00; profit is -1.68 e. payoff is 0; profit is -3.32 Chg 1.47Question 5: Suppose that a March call option to buy a share for $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.Plz explain it
- A call option on a stock trading at $58 has an exercise price of $47. The call option is _____ Check all that apply A. in the money B. out of the money C. at the moneySuppose an investor purchases a 3-month call option and a 3-month put option on ABC stock. The strike of the call option is $60; the strike of the put option is $65. Suppose the price of the put option is $4.20, the price of the call option is $3.50. a. Suppose the price of ABC stock at option expiry is $62 per share. What is the payoff and profit/loss on both options positions? b. What is the maximum profit the investor could have earned on his call option position? On the put position? Edit MinitA trader buys a call option on a share for K2. The stock price is K25 and the strike price is K20. State the circumstances under which the trader will make a profit. State the circumstances under which the option will be exercised. Draw a diagram in support of your answers above, showing the variation of the trader’s profit with the stock price at the maturity of the option.
- The price of a stock is $64. A trader buys 1 put option contract on the stock with a strike price of $60 when the option price is $10. When does the trader make a profit? a. When the stock price is below $50 b. When the stock price is below $54 c. When the stock price is below $60 d. When the stock price is below $64Label the following for this diagram: a. Name of options payoff b. Identify whether positive or negative premium c. Identify breakeven point d. What is the profit or loss when stock price is S60 at maturity e. Suppose you have this options position, should you exercise your right (if any) assuming that the stock price is $60 at maturity? Option Payoffs and Profits Long put $40 $20 $0 Option Payoff Option Profit Exerche Price $20 S40 $20 $40 S60 $80. Stock Price At Maturity Payoff and Profit4. Consider a stock with a current price of S0 = $60. The value of the stock at time t = 1 can take one of two values: S1,u = $100, S1,d = $40. The price of a risk-free bond that pays out $1 in period t = 1 is $0.90. (a) Using a one-step binomial tree, write down the possible payoffs of a put option on stock S with strike K = $60 and maturity t = 1. (b) What is the price of this put option? (c) What is the price of a call option with strike K = $60 and maturity t = 1? Please use put-call parity to find the call price.
- Suppose that call options on a stock with strike prices $100 and $106 cost $8 and $5, respectively. How can the options be (the profits from option positions and the total profit).Assume a stock is selling for GH¢48.50 with options available at 40, 50, and 60 strike prices.The 50 call option price is at 2.75.a. What is the intrinsic value of the 50 call?b. Is the 50 call in the money?c. Are the 40 and 60 call options in the money?Question 5: A call option on a stock that expires in a year has a strike price of $99. The current stock price is $100 and the one-year risk free interest rate is 10%. The price of this call is $6. a) Is arbitrage possible? What is the arbitrage position? b) do you het this minimum? Find the minimum arbitrage profit for this strategy. When