You are holding call options on a stock. The stock's beta is 0.55, and you are concerned that the stock market is about to fall. The stock is currently selling for $4 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.60. How much of the market-index portfolio must you buy or sell to hedge your market exposure? (Enter your answer in dollar not in millions.) Market index portfolio to

You are holding call options on a stock. The stock's beta is 0.55, and you are concerned that the stock market is about to fall. The stock is currently selling for $4 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.60. How much of the market-index portfolio must you buy or sell to hedge your market exposure? (Enter your answer in dollar not in millions.) Market index portfolio to

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 call options on XYZ stock with time to expiration 3 months and strike price $90 are selling at an implied volatility of 30% ExxonMobil stock price is $90 per share, and the risk free rate is 4%. Required: a1 If you believe the true volatility of the stock is 32%, would you want to buy or sell call options? a2-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?
3 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 - $77 price = Exercise price = $75 Risk-free rate = Option maturity = 5 months Standard deviation of annual stock returns Call price Put price $ $ 3.4% per year, compounded continuously = 59% per year 3.61 x 0.56 X 1
Your investment club has only two stocks in its portfolio. $10,000 is invested in a stock with a beta of 0.6, and $25,000 is invested in a stock with a beta of 1.6. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.
Consider a market where there are N rational traders. All of these traders have CARA preferences with risk aversion parameter γ = .5. They are considering a stock that will pay a terminal dividend in the next period. The expected payoff of the dividend is $100 per share with a standard deviation of $10. Assume that the discount rate is zero. That is, don’t worry about discounting future payoffs. a) If there are 10 shares of the stock available, what is the price of the stock as a function of N? b) Does the price increase or decrease as N increases? Explain the intuition of this result. c) If N = 10, what is the price of the stock? How does the price change if γ increases to .6? Explain the intuition for why the price moves this direction when γ increases.
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.
You buy a share of stock, write a 1-year call option with X= $85, and buy a 1-year put option with X- $85. Your net outlay to establish the entire portfolio is $83.3. The stock pays no dividends. a. What is the payoff of your portfolio? Payoff b. What must be the risk-free interest rate? (Round your answer to 2 decimal places.) Risk-free rate %
Please answer fast i give you upvote.
A stock priced at $50 has two possible outcomes, either increases to $60 or decreases to $42. If the stock goes up, the payoff of the stock's call option = S5. But, if the stock price declines to $42, the calls will expire worthless. Given these two possible outcomes, what is the Hedge Ratio of the Call option? Round your answer to two decimals. The listed correct answer was 0.28. I could not find a way to get this.
A stock currently trades at $100. Consider a put and a call option written on this stock with strike price $105. Which of the following statements is most accurate? A.The call option is in-the-money and the put option is out-of-the-money B.The call option is out-of-the-money and the put option is in-the-money C.Both options are in-the-money D.Cannot determine without further information
You are holding call options on a stock. The stock’s beta is 0.86, and you are concerned that the stock market is about to fall. The stock is currently selling for $22 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.95. How much of the market-index portfolio must you buy or sell to hedge your market exposure? Note: Enter your answer in dollar not in millions. please answer fast i give upvote

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