Question

You wish to buy a Euro Call Option expiring in 6 months with a strike price of $1.35. The volatility of the $/Euro exchange rate is expected to be 8.36% on an annualized basis. Currently the interest rate on the euro is currently 0.00% whereas it is 1.5% on the dollar. What is the price of this call option? What is corresponding Put Option worth? What happens to the price of both the Call and Put Option when the volatility goes to 10%. What are the new prices? What happens to the price of both the Call and Put Option as we get closer to the expiration date? What is the new price of the call if no other factors change but we are 3-months away from expiration?

Answer #1

Assuming Spot rate for EURUSD is $1.2328, the price of Call option is $0.0026 and Put option is $0.1099. When Call option near maturity, price starts decreasing and nears 0 just before maturity, since it is about to mature and the time value goes on decreasing - price of the option is based upon majorly the intrinsic value. Price of Put option increases as and how it nears maturity. At maturity = 3 months, price of Call option is $0.0003 and Put option is $0.1126.

Considering all other parameters being same, if volatility increases to 10.0%, price of Call option is calculated at $0.0052 and that of a Put option is $0.1124.

You buy a call option and buy a put option on bond X. The strike
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option is $105. The call option premium is $5 and the put option
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expiration date, which happens to be the same for the call and the
put.
If the price of bond X is $100 on the expiration date, your...

A European call option on a stock with a strike price of $50 and
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the stock with the same strike price and expiration as the call
option is trading at $2. The current stock price is $60 and a $1
dividend is expected in three months. Zero coupon risk-free bonds
with face value of $100 and maturing after 3 months and 6 months
are trading at $99...

A European call option on a stock with a strike price of $50 and
expiring in six months is trading at $14. A European put option on
the stock with the same strike price and expiration as the call
option is trading at $2. The current stock price is $60 and a $1
dividend is expected in three months. Zero coupon risk-free bonds
with face value of $100 and maturing after 3 months and 6 months
are trading at $99...

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expiring in six months is trading at $5. A European put option on
the stock with the same strike price and expiration as the call
option is trading at $15. The current stock price is $64 and a $2
dividend is expected in three months. Zero coupon risk‐free bonds
with face value of $100 and maturing after 3 months and 6 months
are trading at $99...

A call option on the euro expiring in Six months has an exercise
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foreign currency option transactions for each of the following spot
rates at expiration: $0.90, $0.95, $1.00, $1.05, and $1.10.
Construct a profit graph. Find the breakeven spot rate at
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(Show answers in Excel if possible)

Assume that you buy a call option on euros with a strike price
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expiration in three months. The option is for €100,000. Calculate
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no dividend. Compute the Black-Merton-Scholes value of the TSLA
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no dividend. Compute the Black-Merton-Scholes value of the TSLA
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