Question

A trader is purchasing three European call options with a strike price of $45 and two...

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 graph showing the profit for the put, call and combined position. Why might a trader choose to exercise such a strategy? Please show all steps and equations used.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. A trader buys a call option with a strike price of €45 and a put...
1. A trader buys a call option with a strike price of €45 and a put option with a strike price of €40. Both options have the same maturity. The call costs €3 and the put costs €4. Draw a diagram showing the variation of the trader’s profit with the asset price. Explain the purpose of this strategy
Q4. A trader longs a European call and shorts a European put option. The options have...
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.)
A trader sells a European call option on a share for 4 SEK. The stock price...
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!
You buy a put option with strike price of $40 and simultaneously buy two call options...
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...
A trader conducts a trading strategy by selling a call option with a strike price of...
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 strap option strategy is created by purchasing two call options and one put option of...
A strap option strategy is created by purchasing two call options and one put option of the same underlying stock. The options have the same exercise price (E=50) and same expiration date. a) What is the payoff of the strategy is the stock price is $0? c) What is the payoff of the strategy is the stock price is $100?
The strike price for a European call and put option is $56 and the expiration date...
The strike price for a European call and put option is $56 and the expiration date for the call and the put is in 9 months. Assume the call sells for $6, while the put sells for $7. The price of the stock underlying the call and the put is $55 and the risk free rate is 3% per annum based on continuous compounding. Identify any arbitrage opportunity and explain what the trader should do to capitalize on that opportunity....
The price of a European call that expires in six months and has a strike price...
The price of a European call that expires in six months and has a strike price of $28 is $2. The underlying stock price is $28, and a dividend of $1 is expected in 4 months. The term structure is flat, with all risk-free interest rates being 6%. If the price of a European put option with the same maturity and strike price is $3, what will be the arbitrage profit at the maturity?
A call option with a strike price of $1.30/€ and a premium of $0.03/€ is executed...
A call option with a strike price of $1.30/€ and a premium of $0.03/€ is executed as the market price is $1.39/€. The buyer of the option has purchased ten contracts (one contract is for €12,500). The total profit amounts to: Question options: €7,500 $7,500 €11,250 $11,250 Question 16 (1 point) Saved A trader holds a European put option with a strike price off $1.30/€ and a premium of $0.05/€. At the expiration date the market rate is $1.40/€. What...
The price of a stock is $40. The price of a one-year European put option on...
The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. a) Construct a payoff and profit/loss table b) Draw a diagram illustrating how the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT