Question

The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices.

Calls |
Puts |
|||

Strike |
March |
June |
March |
June |

45 |
6.84 |
8.41 |
1.18 |
2.09 |

50 |
3.82 |
5.58 |
3.08 |
4.13 |

55 |
1.89 |
3.54 |
6.08 |
6.93 |

. Use the June/March 50 call spread. Assume one contract of each. What will be the profit if the spread is held 90 days and the stock price is $45?

Answer #1

**Call
option** means right to exercise but not the
obligation to buy an option.

If we take June/March 50 call spread, the profit will be:

One contract generally consist of 100 shares.

As the spread is for 90 days we will consider premium of $3.82

The amount of premium paid is $3.82*100= $382

If the stock price is $45 then trader will not exercise its call option as it is priced at $50 and it is available for less amount in market at $45.

So, the loss in this option will be the amount of premium that is $382.

**Put
option** means right to exercise but not the
obligation to sell an option.

in this case premium paid is $3.08*100= $308

If the stock price is $45 then trader will exercise its put option as it is priced at $50 and market value is $45.

so the gain will be ($50-$45)=$500,

reduced by amount of premium paid i.e. $500-$308= $192.

Ans: Call option holder will bear loss to the amt of premium i.e. $382 and

Put option holder will gain from the contract with $ 192.

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Strike
March (calls)
June (calls)
March (puts)
June (puts)
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
Use this information to answer the following questions. Assume
that each transaction consists of...

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Calls
Puts
Strike
March
June
March
June
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
Use this information to answer the following questions. Assume
that each transaction consists of one contract...

The following prices are available for call and put options on a
stock priced at $60. The risk-free rate is 4 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Calls
Puts
Strike
March
June
March
June
55
7.2
8.4
1.7
2.9
60
2.5
3.7
3.2
4.8
65
1.8
2.4
6.4
7.5
For questions 19 through 23, consider a bull money spread using
the March 55/60 calls.
19. ...

XYZ Stock currently trades for $45 per share. You find the
following options matrix (prices of calls and puts) for a June 1st
expiration date (which applies for all)
40 strike call option:
$9
40 strike put option: $2
45 strike call option:
$4
45 strike put option: $4
50 strike call option:
$2
50 strike put option: $9
55 strike call option:
$1
55 strike put option: $15
You believe that XYZ will be extremely volatile in the next...

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