Suppose you took a long position on a put option with an exercise price of $1.95 perpound and paid a premium $0.20 per pound.Required:a. If the spot exchange rate turns out to be $2.10 per pound on the maturity date, is theput option in-, at-, or out-of-the-money?b. If the spot exchange rate turns out to be $2.10 per pound on the maturity date, willyou exercise this option?c. If the spot rate at maturity turns out to be $1.90 per pound, is the contract in-, at-, orout-of-the-money?d. If the spot rate at maturity turns out to be $1.90 per pound, will you exercise thisoption?The option isWill you exercise this option?Spot Rate $2.10Spot Rate $1.90

A long put option is a type of options contract that gives the holder the right, but not the…

Answered: Suppose you took a long position on a…

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 the current price of an asset is $100. After three months, there are two possible values for the asset price, and after six months there are three, as follows: S++ = 121 s+ = 110 So = 100 st- = 92 S- = 90 S-- = 81 The annual risk-free rate of interest is 2%.
26. Suppose an investor buy a European call option at price c, K is the strike price and ST is the spot price of the asset at maturity of the contract, when ( ),the investor will exercise the option.
Assume the spot Swiss franc is $0.7040 and the six-month forward rate is $0.7030. What is the Value of a six-month call and a put option with a strike price of $0.6840 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Option Call Put Value cents cents
2. Calculate the put premium according to put-call parity which gives no arbitrage opportunity. Explain what transaction would you do if the put premium is below/above the put premium you calculated. European call option premium: c = $2 Stock price today: So- $30 Life of option: T=0.5 Risk-free rate for maturity T with continous compounding: r= 8% Strike price: K= Decide on the K value yourself (carefully). No dividends paid during life of option.
Suppose the following for European options: Stock price $94 3-month call options with strike price $97 3-month put option with strike price $98 1-year risk-free rate is 3%. The put option is trading ot $5 and there is an identical call option that is trading for $4. The arbitrage gain that can be made is equal to: O a. $2.00 b. $0.27 Oc. $3.00 O d. $1.27 O e $227
For a call option of CN¥100,000 with the $0.16 exercise price and $0.0005 premium, When the spot exchange rate is $0.1602, the call option holder should __ the call? a. exercise b. not exercise
4. An American put option to sell a British pound for dollars has a strike price of $1.5 and a time to maturity of 1 year. The volatility of the pound/dollor exchange rate is 15% per annum, the dollar interest rate is 6%, the British pound interest rate is 7%, per annum, and the current exchange rate is 1.52. Use a three-step binomial tree to value the option.
The speculator buys one put option at a strike price of $70/barrel and expiry date October 2021 for a premium of $1.20/barrel. Consider the following expected payoff chart for buying a put option. What are the names of point A and B? What is the exact value of A? What is the exact value B?
A firm has a payable of €2,400,000.00. They hedge this exposure with a call option with a strike price of $ 1.2083 / €. The premium of the option is $0.0121. If at the time of payment the spot price ends up equal to $ 1.2687 / €. What is the firm's total cost?
Your options trading strategy involves buying a European put with a strike price of ₺10 for ₺0.50 and aEuropean call with a strike price of ₺25 for ₺0.75 and selling a European put with a strike price of ₺15 for₺1.25 and a European call with a strike price of ₺20 for ₺1.50. The expiry date and the underlying asset isidentical for each of the four options. Draw the profit diagram for this strategy and indicate the maximumprofit/loss levels and break-even price levels. Show the details of your intermediate calculations.
1
A financial institution has the following portfolio of over-the-counter options on GBP (sterling, UK currency): Type Position Delta of Option Gamma of Option Vega of Option Call -1,000 0.5 2.2 1.8 Call -500 0.8 0.6 0.2 Put -2,000 Call -500 -0.40 0.70 1.3 0.7 1.8 1.4 A traded option is available with a delta of 0.3, a gamma of 1.7, and a vega of 0.8. To make the portfolio both gamma-neutral and delta-neutral, you will take a (long/short) position in the traded option. You will also take a (long/short) position in GBP. How many GBP (i.e. don't worry about L/S, just write how many GBP)? Assume that all implied volatilities change by the same amount so that vegas can be aggregated. Enter your answer rounded to the nearest integer, skip the currency sign. For example, if your calculation results in GBP 9,876.1234567, you only need to enter 9876

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