Suppose the current ABC stock price is $50 and an option trader speculates this price will fall below $50 soon. Which set of actions is the best strategy for him? buy the Stock and write a $50 call O buy $40 call and short $60 call short $40 put and buy $60 put O buy $50 call and buy $50 put

Suppose the current ABC stock price is $50 and an option trader speculates this price will fall below $50 soon. Which set of actions is the best strategy for him? buy the Stock and write a $50 call O buy $40 call and short $60 call short $40 put and buy $60 put O buy $50 call and buy $50 put

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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Question

Suppose the current ABC stock price is $50 and an option trader speculates this price will fall
below $50 soon. Which set of actions is the best strategy for him?
buy the Stock and write a $50 call
buy $40 call and short $60 call
short $40 put and buy $60 put
buy $50 call and buy $50 put

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suppose that you have a call option that is at 1.30. it has a Delta of .35 a Gamma of .06 a Theta of .02 assume Vega is constant. today the stock moves from $45 to $46. the next day (day 2) the stock moves another dollar to $47. What is the value of your call option at the end of day two A. $2.02 B. $1.69 C. $1.73 D. $1.98
Suppose you write 46 call option contracts with a $80 strike. The premium is $5.61. Evaluate your potential gains and losses at option expiration for stock prices of $70, $80, and $90. Note: Input all amounts as positive values. Do not round intermediate calculations. At stock price of $70, the At stock price of $80, the At stock price of $90, the is is
Need asap... Suppose that you have a call option that is at 1.30. it has a Delta of .35 a Gamma of .06 a Theta of .02 assume Vega is constant. today the stock moves from $45 to $46. the next day (day 2) the stock moves another dollar to $47. What is the value of your call option at the end of day two? A. $2.02 B. $1.69 C. $1.73 D. $1.98
You have six investment options based on the following three given stocks (X, Y, and Z): State of Economy Boom Normal Bust Probability Rx 0.2 0.5 0.3 Option 1 (X only) Option 2 (Y only) Option 3 (Z only) Option 4 (X and Y) Which one of the following investment options has the lowest risk? (Try to answer the question without any calculations.) Option 5 (X and Z) Ry Option 6 (Y and Z) Rz 2% 20% 30% 9% 12% 17% 27% -2% -5%
You are long both a call and a put on the same share of stock with the same exercise date. The exercise price of the call is $40 and the exercise price of the put is $45. What is the minimum payoff from this option portfolio at the expiration date? (in dollars without the dollar sign, use two decimal places).
4. Consider an exchange option. Suppose the initial prices (time 0) of the two stocks are S =S2 = 100 and a =0.40,. Suppose also that the returns on the stocks are uncorrelated. Assume no dividends and final maturity of the option is T = 2 year: (a) Using the closed-form expressions for the price of these options, identify the price of the exchange option when o = 0, a2 =0.20, ag =0.40, and @2 =0.60. (b) Is there a trend in the price? Intuitively, why is this the case?
A stock price is currently $23. A reverse butterfly spread (le. options are sold with strike prices of K, and K. and two options with the middle strike price K₂ are purchased) is created from call options with strike prices of $20, $25, and $30. Which of the following is TRUE? Select one alternative: O The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20. O The gain when the stock price is greater than $30 is the same as the gain when the stock price is less than $20. O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20. O The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20.
F2.
Consider the following portfolio. You write a put option with exercise price $90 and buy a put with the same expiration date with exercise price $95. a. Plot the value of the portfolio at the expiration date of the options. b. Now, plot the profit of the portfolio. Which option must cost more?
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