Question

QUESTION 14

XYZ stock, currently trading at $45, has the following quotes from its option chain expiring in 6-months:: Call Strike = 48, Last Price=2.40, Bid=2.05, Ask=2.75 Put Strike = 43, Last Price= 1.55, Bid=1.08, Ask=1.70 What is the maximum gain (G) and loss (L) per share for a collar contract at these strike prices if you buy XYZ stock at the current price?

G=6.75, L=unlimited

G=4.67, L=0.33

G=3.35, L=1.65

G=4.05, L=0.95

QUESTION 15

You want to sell a naked put option using the following quote. What is your expected annualized rate of return? Put Strike (3-month to expiration) = 30, Last Price = 40, Bid = 1.35, Ask = 1.90

4.50%

27.84%

19.25%

6.33%

Answer 1

Question 14:

Diagram of collor Strategy:

Collor is made by bying a share at current market price and Selling a call at higher strike price and buying a put at lower strike price.

Net premium=Call premium(bid)-put premium(ask)

=2.05-1.7

=.35

Maximum gain=Call stike price-current spot price+Net premium

=48-45+.35

=3.35

Maximum Loss=Current spot price-Put strike price-Net premium

=45-43-.35

=1.65

Question 15:

Option premium=1.35

Capital margin requirement=30

3 month rate of return=1.35/30*100

=4.5%

Annualized rate of return=(1+3month ROR)^{^4}-1

=1.045⁴-1

=1.1925-1

=.1925 or 19.25%

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