The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, the price of a three-month call option with an exercise price of $100 is $10, and a put with the same expiration date and exercise price costs $7. a. What would be a simple options strategy to exploit your conviction about the stock price's future movements? Sell both a put option and a call option on the stock. Buy both a put option and a call option on the stock. Buy a put option and sell a call option on the stock. Sell a put option and buy a call option on the stock. b. How far would the price have to move in either direction for you to make a profit on your initial investment? Stock price must move up above $ | for you to make a profit. or move down below $

The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, the price of a three-month call option with an exercise price of $100 is $10, and a put with the same expiration date and exercise price costs $7. a. What would be a simple options strategy to exploit your conviction about the stock price's future movements? Sell both a put option and a call option on the stock. Buy both a put option and a call option on the stock. Buy a put option and sell a call option on the stock. Sell a put option and buy a call option on the stock. b. How far would the price have to move in either direction for you to make a profit on your initial investment? Stock price must move up above $ | for you to make a profit. or move down below $

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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The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is
going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current
price of the stock is $100 per share, the price of a three-month call option with an exercise price of $100 is $10, and a put with the
same expiration date and exercise price costs $7.
a. What would be a simple options strategy to exploit your conviction about the stock price's future movements?
Sell both a put option and a call option on the stock.
Buy both a put option and a call option on the stock.
Buy a put option and sell a call option on the stock.
Sell a put option and buy a call option on the stock.
b. How far would the price have to move in either direction for you to make a profit on your initial investment?
Stock price must move up above $
| for you to make a profit.
or move down below $

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The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $130 per share, and the price of a 6 month call option at an exercise price of $130 is $10.85. Required: a. If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $130? (The stock pays no dividends.) b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Complete this question by entering your answers in the tabs below. Required A Required B If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise…
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