Question

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.

Answer #1

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 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 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 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 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 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 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?

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...

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...

1. You buy a put option with strike price of $25. Currently, the
market value of the underlying asset is $30. The put option premium
is $3.25. Assume that the contract is for 150 units of the
underlying asset. Assume the interest rate is 0%. a. What is the
intrinsic value of the put option? b. What is the time value of the
put option? c. What is your net cash flow if the market value of
the options’ underlying...

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