Question

(please do it on paper)

Suppose you are given the following prices for the options on ABC stock:

Strike (in $) call put

15.0 1.6 2.0

17.5 1.2 2.5

20.0 0.9 3.2

- Suppose you take the following position: long one call with strike 15.0, short two calls with strike 17.5, and long one call with strike 20.0. Please draw the payoff at maturity.

- What would be the total gain (loss) on the above position if the stock price at maturity turned out to be S(T) = 16 (taking into account the price of the options)?

- Suppose you decide to buy a 15.0 straddle (1 long call + 1 long put with the same strike of 15.0). Please draw the payoff at maturity.

- Over what range of underlying stock price (at maturity) will you lose money (after taking into account the price you paid for the options)?

Answer #1

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**Workings:**

Suppose you are given the following prices for the options on
ABC stock:
Strike (in
$)
call
put
15.0
1.6
2.0
17.5
1.2
2.5
20.0
0.9
3.2
Suppose you take the following position: long one call with
strike 15.0, short two calls with strike 17.5, and long one call
with strike 20.0. Please draw the payoff at maturity.
What would be the total gain (loss) on the above position if
the stock price at maturity turned out to be...

Suppose you are given the following prices for the options on
ABC stock:
Strike (in
$)
call
put
15.0
1.6
2.0
17.5
1.2
2.5
20.0
0.9
3.2
Suppose you take the following position: long one call with
strike 15.0, short two calls with strike 17.5, and long one call
with strike 20.0. Please draw the payoff at maturity.
What would be the total gain (loss) on the above position if
the stock price at maturity turned out to be...

(Please do it on paper)
Suppose you are given the following data:
2-month option on XYZ stock:
Underlying S = 48.1
Strike X = 50
Put price = $2.2
What should be the price of call to prevent arbitrage if
2-month interest rate is 6% p.a.?
If the actual call price was $1.3 how would you implement an
arbitrage opportunity?
Compute your payoff at maturity.

-Suppose the underlying stock is priced at $23.5, you perform
the following 4 options trades: Buy a call option with strike price
of 27.5 at $1.5 Sell a call option with strike price of 25 at $2
Buy a put option with strike price of 20 at $1.5 Sell a put option
with strike price of 22.5 at $1.5 Draw the net payoff diagram of
the strategy and explain in what direction of the market this
strategy will be profitable?

Suppose that call options on a stock with strike prices $300
and $345 cost $30 and $25, respectively. How can the options be
used to create a bull spread?
Call 1 – Strike $300: Position Long or short?__________
Call 2 – Strike $345: Position Long or
short?__________
I. Construct
a table that shows the profit and payoff for the spread.
II. When
is the Maximum profit? How much?
III. Draw
a diagram for the spread showing the total...

2-Suppose the underlying stock is priced at $23.5, you perform
the following 4 options trades: Buy a call option with strike price
of 20 at $2.5 Sell a call option with strike price of 22.5 at $1.75
Sell a call option with strike price of 25 at $1.25 Buy a call
option with strike price of 27.5 at $1 Draw the net payoff diagram
of the strategy and explain in what direction of the market this
strategy will be profitable?

A trader is purchasing three European call options with a strike
price of $45 and two put options on the same stock with a strike
price of $50. Both options have the same maturity date. The price
of the call option is $5, while the price of the put option is $4.
Create a table and a diagram illustrating the profit at termination
from these positions for various levels in the price of the
underlying. On one chart draw a...

Q4. A trader longs a European call and shorts a European put
option. The options have the same underlying asset, strike price
and maturity. Please depict the trader’s position. Under what
conditions is the value of position equal to zero? (Hint: compare
the payoff pattern of the option position with that of a forward
contract.)

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...

You plan on trading options for a stock using a straddle
strategy. The stock offers a call with a strike price of $75 with a
premium of $4. It also offers a put with a strike price of $75 with
a premium of $7. Both options expire on the same day.
For what range of stock prices would the straddle lead to
loss?
For what range of stock prices would the straddle lead to
gain?
Draw the profit and price...

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