Suppose that call options on ExxonMobil stock with time to expiration 3 months and strike price $104 are selling at an implied volatility of 28%. ExxonMobil stock price is $104 per share, and the risk-free rate is 6%. a. If you believe the true volatility of the stock is 30%, would you want to buy or sell call options? Buy call options Sell call options b. Now you want to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold? (Round your answer to 4 decimal places.) Answer is complete but not entirely correct. Number of shares 0.5753

Suppose that call options on ExxonMobil stock with time to expiration 3 months and strike price $104 are selling at an implied volatility of 28%. ExxonMobil stock price is $104 per share, and the risk-free rate is 6%. a. If you believe the true volatility of the stock is 30%, would you want to buy or sell call options? Buy call options Sell call options b. Now you want to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold? (Round your answer to 4 decimal places.) Answer is complete but not entirely correct. Number of shares 0.5753

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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Show me the steps to solve... 1. June CME stocks are trading at $ 82.5 and the June CME call option is trading at $ 3.5 with the strike price of $ 80. What is the intrinsic value? 2. What are the intrinsic value and time value of a CME put with the strike price of $95, if the underlying asset is trading at $94.98 and the option premium is $0.03 ?
You want to use S&P 500 index options to hedge your portfolio. • Portfolio has a beta of -1.0. • It is currently worth $500,000 and index stands at 1000. • The risk-free rate is 0% per annum. • There is no dividend yield on both the portfolio and the index. 1) What option contracts would you consider? 2) How many option contracts should be purchased? 3) What strike price should we consider for insurance against the portfolio value falling below $450,000 in three months? 4) What happens if index level turns out to be 1200 after three months?
Suppose that JPMorgan Chase sells call options on $1.10 million worth of a stock portfolio with beta = 1.45. The option delta is 0.52. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 200. a. How many dollars' worth of the market-index portfolio should it purchase? Answer is complete and correct. Market index portfolio Delta $ 829,400 b. What is the delta of a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Answer is complete and correct. (0.48) c. Complete the following: (Round your answer to 1 decimal place. Negative amount should be indicated by a minus sign.) X Answer is not complete. Assuming the 1 percent market movement, JP Morgan should sell put contracts.
Please Give me the right answer and calculations The current stock price of Johnson and Johnson is $64 and the stock does not pay dividend. the instantaneous risk free rate return of 5%. The instantaneous standard deviation of J&J’s stock is 20% you want to purchase a put option on this stock with an excercise price of $55 and an expiration date 73 days from now using the black scholes the put option should be worth today Multiple choice .01 .09 9.26 9.62 Others
Suppose that JPMorgan Chase sells call options on $1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio.a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position?b. Now it decides to use market index puts to hedge its exposure. Should it buy or sell puts? How many? The index at current prices represents $1,000 worth of stock.
The value of an option is $6.24, its delta is 0.5, and the price for the underlying stock is $82. What will be the expected price of an option be if the price for the underlying stock drops to $80.50?
You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock $72 price Exercise price = $70 Risk-free rate = deviation of Option maturity = 4 months Standard annual stock returns = Call price Put price 4.3% per year, compounded continuously = 61% per year
Raghu
Consider two put options on different stocks. The table below reports the relevant information for both options: Put optionTime to maturityCurrent price of underlying stockStrike priceVolatility ( )X1 year$27$1830%Y1 year$25$2030%All else equal, which put option has a lower premium? A.Put option Y B.Put option X
If a particular stock does not pay dividends and is currently priced at $24 per share, what should be the price of a call option with a maturity of one year and a strike price of $24.5 if put options with the same features currently cost $2? Assume a risk free rate of 2%. (use 5 decimal places)
7
Find the price of a 1-year European call option with a strike price of $110 if the stock price is $100, the volatility of the stock is 25%, the risk-free rate is 2%, and the stock doesn't pay any dividends.

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