Question

Use the following option information to work problems 28-31. The following information is available regarding call and put options on MSFT. Exercise Price Call Price Put Price $185.00 $3.80 $1.53 187.50 2.40 2.54 190.00 1.43 4.02 Current price of MSFT is $187.28 28. Construct a long call position using the call with an exercise price of $187.50. Make sure to graph the position at option expiration showing the maximum loss, maximum profit and stock price break even. 29.) Construct a short put position using the put with an exercise price of $185. Make sure to graph the position at option expiration showing the maximum loss, maximum profit and stock price break even. 30.) Compute the intrinsic value of the call with an exercise price of $185? What is the time value of the option?

Answer #1

Consider the following options portfolio. You write an August
expiration call option on IBM
with exercise price $150. You write an August IBM put option with
exercise price $145.
a. Graph the payoff of this portfolio at option expiration as a
function of IBM’s stock price at
that time.
b. What will be the profit/loss on this position if IBM is selling
at $153 on the option expiration
date? What if IBM is selling at $160? Use the data in...

A slight variation of a straddle is a strap, which consists of
using two calls and one put. Construct a long strap using options
with exercise price $165. The price of the call option is $8.10 and
the price of the put option is 6.75. Hold the position until
expiration. Determine the profits and graph the results. Identify
the break-even stock prices at expiration and the minimum profit.
What is the difference of a strap relative to a straddle?

A call option on the euro expiring in Six months has an exercise
price of $1.00 and is priced at $ 0.0385. Construct a simple long
position in the call. determine the profit from the following basic
foreign currency option transactions for each of the following spot
rates at expiration: $0.90, $0.95, $1.00, $1.05, and $1.10.
Construct a profit graph. Find the breakeven spot rate at
expiration. Assume that each contract covers 100,000 euros.
(Show answers in Excel if possible)

You buy a put option with strike price of $40 and simultaneously
buy two call options with the same strike price, $40. Currently,
the market value of the underlying asset is $39. The put option
premium is $2.50 and a call option sells for $3.25. Assume that the
contract is for 1 unit of the underlying asset. Assume the interest
rate is 0%. Draw a diagram depicting the net payoff (profit
diagram) of your position at expiration as a function...

Suppose you construct the following European option trades on
Microsoft stock:
purchase a call option with an exercise price of $28 and a premium
of $12 and
write a call option with an exercise price of $62 and a premium of
$6. What is your maximum dollar net profit, per share?

A trader conducts a trading strategy by selling a call option
with a strike price of $50 for $3 and selling a put option with a
strike price of $40 for $4. Please draw a profit diagram of this
strategy and identify the maximum gain, maximum
loss, and break-even point. Hint: Write down a profit
analysis matrix to help you draw the payoff lines.

a. A speculator purchased a call
option on Japanese Yen at a strike price of $0.70 and for a
premium of $.06 per unit. At the
time the option was exercised if the Japanese Yen spot
rate was $.75
a) Find the speculator’s net profit
per unit?
b) If each contract is made up of
62500 units what is the net profit per contract?
c) At which spot price will the
speculator break even?
d) What is the...

3. Suppose you buy a call and put option that has the same
strike price of $75 and same maturity. Call costs $5 and put costs
$4. Graph the profits and losses at expiration for different stock
prices? (You need to draw call and put in the same graph) If the
stock price at maturity is $80, what is your profit or loss?

The prices of European call and put options on a
non-dividend-paying stock with 12 months to maturity, a strike
price of $120, and an expiration date in 12 months are $25 and $5,
respectively. The current stock price is $135. What is the implied
risk-free rate?
Draw a diagram showing the variation of an investor’s profit and
loss with the terminal stock price for a portfolio consisting
of
One share and a short position in one call option
Two shares...

CoStar Group stock price is $590 and the premium for September
CoStar stock call option with strike price X=$550
is $45.30. You just wrote the call option
for C=$45.30.
1) For the option premium, how much are the intrinsic value and
time value? (4 points)
2) What would be your profit / loss if the stock price of Google
is $525 on the expiration date? (3 points)
3) What would be your profit / loss if the stock price...

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