The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4. The options are exercised when the stock price is $69. What is the trader's net profit or loss? O Loss of $1,500 Loss of $1.000

The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4. The options are exercised when the stock price is $69. What is the trader's net profit or loss? O Loss of $1,500 Loss of $1.000

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

The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4. The
options are exercised when the stock price is $69. What is the trader's net profit or loss?
O Loss of $1,500
O Loss of $1,000
Gain of $1,000
Gain of $1,500
None of these
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ABC Company's current stock price is $100. The risk-free rate is 4%. 38. The payoff to the holder of a call option on ABC with an exercise price of $200 is closest to: A. $100 if stock price at option expiration equals $200 B. Zero if stock price at option expiration equals $100 C. -S40 if stock price at option expiration equals $160
$80. The call premium is $6 and the put premium is $8. To keep thìngs simple, you can assume each contract allows the holder to buy or sell 13) You buy one call contract and also buy one put contract, both with the strike price of one (rather than the typical 100) share of the underlying stock. a. Compute the payoff to your option position if the stock price is $92 when the options expire. b. Compute the profit you made if the stock price is $92 when the options еxpire. c. What would happen to the value of your position if the volatility of returns for the underlying stock increases a day after you bought the call and the put? Please explain your answer for full credit. E FC MacBook Pro I A !!!
3. A stock sells for $110. A call option on the stock has an exercise price of $105 and expires in 43 days. If the interest rate is 0.11 and the standard deviation of the stock’s return is 0.25. a) Calculate the call using the Black-Scholes model b) What would be the price of a put with an exercise price of $140 and the same time until expiration? c) How does an increase in the volatility and interest rate changes affect the underlying stock’s return on an option’s value? Explain.
1. Three months ago an investment company bought for £8 a call option on a stock with an exercise price of £136. If the stock price at expiration of this option is £147. Select which of the following best describes the option value, the decision of the Investment Company and the return on investment thereon. A. Option value Decision Profit / (loss) % Exercise price – Stock price Exercise 37.5% B. Option value Decision Profit / (loss) % Stock price – Exercise price Don’t Exercise 2.2% C. Option value Decision Profit / (loss) % Exercise price – Stock price Exercise 2.2% D. Option value…
IBM stock is currently trading at $100 per share. An investor purchases one Put option contra on IBM with a $100 strike and at a price of $3.00 per contract. Each options contract represer an interest in 100 underlying shares of stock. For each of the following scenarios determine i 7. the option is in the money, at the money, or out of the money. Show your work. A. When the option expires, IBM is trading at $98 B. When the option expires, IBM is trading at $90 C. When the option expires, IBM is trading at $97
2. The current market price of a share of AT&T stock is $50. If a call option on this stock has a strike price of $45, the call: A) B) C) D) E) is out of the money. is in the money. sells for a higher price than if the market price of AT&T stock is $40. a and c. b and c.
What is the price of a $35 strike call? Assume S = $38.50, σ = 0.25, r = 0.06, the stock pays no dividend and the option expires in 45 days.
You sold a put contract on EDF stock at an option price of $.25 and an exercise price of $22.50. The option expires today when EDF stock is selling for $21.70 a share. Ignoring transactions costs and taxes, what is your total profit on this investment?
a one year call option on a stock with a price of $40 costs $1; a one-year put option on the stock with a strike price of $35 costs $4. suppose that a trader buys two cal options and one put option. the breakeven stock price above which the trader makes a profit is a) $42 b) $45 c) $44 d) $43

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