Question

*Suppose that call options on a stock with strike prices $300
and $345 cost $30 and $25, respectively. How can the options be
used to create a bull spread?*

*
Call 1 – Strike $300: Position Long or short?__________*

*Call 2 – Strike $345: Position Long or
short?__________*

*
I. **Construct
a table that shows the profit and payoff for the spread.*

*
II. **When
is the Maximum profit? How much?*

*
III. **Draw
a diagram for the spread showing the total value of the spread and
both call options.*

Answer #1

Call1 - strike $300 - Position Long or short?: Long

Call2 - strike $345 - Position Long or short? Short

l).

Bull spread can be built by buying one at the money call option with lower strike price, and writing one out of the money call option with higher strike price.

Expiry | Call1 | Call2 | Total Debit | Total Payoff |

<300 | 0 | 0 | -5 | -5 |

305 | 5 | 0 | -5 | 0 |

345 | 45 | 0 | -5 | 40 |

>345 | 45+x | -x | -5 | 40 |

ll).

Maximum Profit is obtained when the stock expires greater than or equal to 345. And the maximum profit is $40

lll).

Diagram is attached below:

Draw the payoff diagram for the following position: (i) long one
25-strike call, (ii)short two 30-strike calls, (iii) long one
35-strike call. Assume all options have the sameunderlying and the
same time to expiration. Be sure to label the axes of your
graph.Briefly explain how these options combine to form the
payoff diagram that you drew

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...

~~~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,...

Suppose you are given the following prices for the options on
ABC stock:
Strike (in
$)
call
put
15.0
1.6
2.0
17.5
1.2
2.5
20.0
0.9
3.2
Suppose you take the following position: long one call with
strike 15.0, short two calls with strike 17.5, and long one call
with strike 20.0. Please draw the payoff at maturity.
What would be the total gain (loss) on the above position if
the stock price at maturity turned out to be...

Suppose you are given the following prices for the options on
ABC stock:
Strike (in
$)
call
put
15.0
1.6
2.0
17.5
1.2
2.5
20.0
0.9
3.2
Suppose you take the following position: long one call with
strike 15.0, short two calls with strike 17.5, and long one call
with strike 20.0. Please draw the payoff at maturity.
What would be the total gain (loss) on the above position if
the stock price at maturity turned out to be...

Explain how you would construct a butterfly spread using call
options with 3 different strikes of 15, 17.5 and 20. These call
options are priced at 4,2 and 0.5 respectively. Draw the payoff
diagram of this spread showing the cost of the spread, the break
even points and the maximum payoff.

The prices of European call and put options on a
non-dividend-paying stock with 12 months to maturity, a strike
price of $120, and an expiration date in 12 months are $25 and $5,
respectively. The current stock price is $135. What is the implied
risk-free rate?
Draw a diagram showing the variation of an investor’s profit and
loss with the terminal stock price for a portfolio consisting
of
One share and a short position in one call option
Two shares...

using the options below, please answer the following
questions:
Option
Type
Strike
Premium
1
Call
40
10
2
Call
50
2
3
Put
40
3
4
Put
50
7
Which options would you buy (i.e. go long) or sell (i.e. go
short) to create a BEAR CALL SPREAD strategy
Complete the payoff and profit table for the strategy in the
table below. No need to create the graph.
ST
Payoff of option #__
Profit of option #__
Payoff of option...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 3 minutes ago

asked 9 minutes ago

asked 14 minutes ago

asked 23 minutes ago

asked 26 minutes ago

asked 27 minutes ago

asked 32 minutes ago

asked 38 minutes ago

asked 41 minutes ago

asked 48 minutes ago

asked 49 minutes ago