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. ...

Stock in Cheezy-Poofs Manufacturing is currently priced at $50
per share. A call option with a $50 strike and 90 days to maturity
is quoted at $1.95. Compare the percentage gains and losses from a
$97,500 investment in the stock versus the option in 90 days for
stock prices of $40, $50, and $60.

~~~In Excel~~~
Question 1. Common stock of a company is
selling today for $53.69. Call options on the company expiring in
1-month with strike prices of $49 and $56 are selling for $4.80 and
$0.36, respectively.
How would you form a bull call spread with the two options
(state what kind of options you would buy or sell at what strike
price to form a call spread)? What is the cost of each spread?
If you have $890 on hand,...

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...

Delta airlines case study
Global strategy. Describe the current global
strategy and provide evidence about how the firms resources
incompetencies support the given pressures regarding costs and
local responsiveness. Describe entry modes have they usually used,
and whether they are appropriate for the given strategy. Any key
issues in their global strategy?
casestudy:
Atlanta, June 17, 2014. Sea of Delta employees and their
families swarmed between food trucks, amusement park booths, and
entertainment venues that were scattered throughout what would...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 7 minutes ago

asked 26 minutes ago

asked 32 minutes ago

asked 35 minutes ago

asked 55 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago