Question

An investor sells a European call on a share for $4. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? Explain how investors profit, according to the variation of the stock price at the maturity of the option. (You can explain by writing a simple formula of the profit, where X is the stock price at maturity.

Answer #1

A trader sells a European call option on a share for 4 SEK. The
stock price is 47 SEK and the strike price is 50 SEK. Under what
circumstances does the trader make a profit? Under what
circumstances will the option be exercised? Draw a diagram showing
the variation of the trader’s profit with the stock price at the
maturity of the option.
Please carefully label: Breakeven point, profit, loss and don't
forget the diagram.. thanks in advance!

An investor buys a European call on a share for $3. The stock
price is $40 and the strike price is $42.
a. Under what circumstances does the investor make a profit?
b. Under what circumstances will the option be exercised?
c. What is the potential loss for the investor?
d. Identify the variation of the investor's loss with the stock
price at the maturity of the option?

An investor buys a put option on a share for $4.The stock price
is $45 and the strike price if $40.Explain under what circumstances
the investor makes a profit and under what circumstances will the
option be exercised. Sketch a diagram showing the variation of the
investor's profit with the stock price at the maturity of the
option. (Please explain the answer in detail, thank you)

.
Suppose that a March call option on a stock with a strike price of
$ 50 costs $ 2.50 and is held until March. Under what circumstances
will the holder of the option make a gain? Under what circumstances
will the option be exercised? Draw a diagram showing how the profit
on a long position in the option depends on the stock price at the
maturity of the option.

Investor A sells a three-month European call option on 100
shares of a stock with a strike price of $40 per share and collects
a total of pays a total of $500 premium. Investor B longs a 3-month
forward contract on100 shares of the same stock at a forward price
of $40 per share. At which stock price in three months will these
two investors have the same profit or loss? (please enter only a
number without the $ sign)

Sugar Land stock is selling for $47 and has the following
six-month options outstanding.
Strike Price
Option Market Price
Call Option
$45
$4
Call option
$50
$1
e. Estimate profit and loss if the investor buys the stock and
sells the call with the $50 strike price if at the expiration stock
price are: $30, $50, $55, and $65 . What is the breakeven stock
price at expiration for investor to make profits?
f. Estimate profit and loss if the...

Suppose that a European put option has a strike price of $150
per share, costs $8 per share, and is held until maturity.
a) Under what circumstances will the seller of the option make a
profit?
b) Under what circumstances will the buyer exercise the
option?
c) Draw a diagram (or a table) illustrating how the profit from
a short position in the option depends on the stock price at the
maturity of the option.

Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
Use put-call parity to explain how would you construct a
European...

Investor A pays a total of $500 to buy a three-month European
call option on 100 shares of a stock with a strike price of $40 per
share. Investor B longs a 3-month forward contract on 100 shares of
the same stock with a forward price of $40 per share. At which
stock price in three months will these two investors have the same
profit or loss? (please enter only a number without the $ sign)

The price of a European call option on a non-dividend-paying
stock with a strike price of $50 is $6. The stock price is $51, the
continuously compounded risk-free rate (all maturities) is 6% and
the time to maturity is one year. What is the price of a one-year
European put option on the stock with a strike price of $50?
a)$9.91
b)$7.00
c)$6.00
d)$2.09

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