Question

A trader has the following portfolio:  Long 1-year put with strike $80  Short 1-year...

  1. A trader has the following portfolio:

    •  Long 1-year put with strike $80

    •  Short 1-year call with strike $120

    •  Long 1 share of stock.

      (Option contracts are for 1 share).

      Assume that the price of the underlying asset is $100. Volatility is 20%, rate=1%, dividend yield 0%.

    1. Calculate the value of the portfolio.

    2. What would be the maximum gain that the trader could incur in a month? Explain how.

    3. What would be the maximum loss the trader could have in 1 month? Explain.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A trader has the following portfolio: 1. Long 1-year put with strike $80 2.  Short 1-year call...
A trader has the following portfolio: 1. Long 1-year put with strike $80 2.  Short 1-year call with strike $120 3. Long 1 share of stock. (Option contracts are for 1 share). Assume that the price of the underlying asset is $100. Volatility is 20%, rate=1%, dividend yield 0%. a. Calculate the value of the portfolio. b. What would be the maximum gain that the trader could incur in a month? Explain how. c. What would be the maximum loss the...
A trader has the following portfolio, where options contracts are for one share. 1. Long 1-year...
A trader has the following portfolio, where options contracts are for one share. 1. Long 1-year put with strike $80 2. Long 1-year call with strike $120 Assume that the price of the underlying asset is $100. Volatility is 20%, rate=1%, dividend yield 0%. a. Calculate the value of the portfolio. b. What will be the value if the stock drops 25% in 1 month? c. What will be the value if the stock drops 25% and the volatility goes...
A trader creates a long strangle with put options with a strike price of $90 per...
A trader creates a long strangle with put options with a strike price of $90 per share, and call options with a strike of $105 per share by trading a total of 40 option contracts (buy 20 put contracts and buy 20 call contracts). Each contract is written on 100 shares of stock. The put option is worth $10.5 per share, and the call option is worth $6.5 per share. A) What is the value of the strangle at maturity...
1. A trader buys a call option with a strike price of €45 and a put...
1. A trader buys a call option with a strike price of €45 and a put option with a strike price of €40. Both options have the same maturity. The call costs €3 and the put costs €4. Draw a diagram showing the variation of the trader’s profit with the asset price. Explain the purpose of this strategy
A trader sells a put option with a strike price of $40 for $5. What is...
A trader sells a put option with a strike price of $40 for $5. What is the trader's maximum gain and maximum loss? How does your answer change if it is a call option?
1. You buy a put option with strike price of $25. Currently, the market value of...
1. You buy a put option with strike price of $25. Currently, the market value of the underlying asset is $30. The put option premium is $3.25. Assume that the contract is for 150 units of the underlying asset. Assume the interest rate is 0%. a. What is the intrinsic value of the put option? b. What is the time value of the put option? c. What is your net cash flow if the market value of the options’ underlying...
Straddle: Long $80 Call at $6, Long $80 Put at $4 Top Strangle: Short $75 Put...
Straddle: Long $80 Call at $6, Long $80 Put at $4 Top Strangle: Short $75 Put for $9, Short $85 Call for $11 For each of the 2 option strategies below please: Calculate the initial cash flow (CF0) Produce a table showing the Value and Profit at expiration (VT and ΠT) for each relevant range of the underlying stock price (ST) The range over which the strategy is profitable
Portfolio of options on shares of a non-dividend paying stock. The portfolio consists of: Long call...
Portfolio of options on shares of a non-dividend paying stock. The portfolio consists of: Long call with a strike price of 50 Short call with a strike price of 55 Long put with a strike price of 55 Short put with a strike price of 50 All options expire in 2 months.The current price of one share of stock is 48.00. The risk-free interest rate is 3%. 1. Determine the cost of the portfolio? 2. Determine the maximum and minimum...
1. A put option has strike price $75 and 3 months to expiration. The underlying stock...
1. A put option has strike price $75 and 3 months to expiration. The underlying stock price is currently $71. The option premium is $10. "What is the time value of the put option? Would this just be 0? Or: 71-75=-4 then 10-(-4)= 14? 2. The spot price of the market index is $900. After 3 months, the market index is priced at $920. An investor had a long call option on the index at a strike price of $930...
Short a call option with a strike price of $1.25 and a premium of $0.12. Long...
Short a call option with a strike price of $1.25 and a premium of $0.12. Long a call option with a strike price of $1.35 and a premium of $0.02 Short a put option with a strike price of $1.35 and a premium of $0.03 Draw a final contingency graph including breakeven mas loss/gain.