Question

An investor buys for $3 a three-month put with a strike price of $38 and sells...

An investor buys for $3 a three-month put with a strike price of $38 and sells for $1 a three-month put with a strike price of $34. What are the profits from this bear spread strategy?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer : Under Bear spread strategy , Put option having lower strike Pice is sold and Buy Put Option having higher strike Price.

To calculate the profits from bear strategy we first nee to calculate loss

Buy Put option at strike price of $ 38

Outflow of Premium = $ 3

Sell Put option at strike price of $ 34

Inflow of Premium = $ 1

Initial Outflow = Maximum Loss = $3 -$ 1

= $ 2

Maximum Gain = Difference in Strike Price - Maximum Loss

= (38 - 34) - 2

=4 - 2

=$2

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
An investor writes a put option with exercise (strike) price of $80 and buys a put...
An investor writes a put option with exercise (strike) price of $80 and buys a put with exercise price of $65. The puts sell for $8 and $3 respectively. If the options are on the same stock with the same expiration date, i. Draw the payoff and profit/loss diagrams for the above strategy at expiration date of options ii. Calculate the breakeven point for this strategy and discuss whether the investor is bullish or bearish on the underlying stock.
An investor wants to construct a bear spread using two put options with the same expiration...
An investor wants to construct a bear spread using two put options with the same expiration T. One put has the strike price of $20 and currently sells for $2. The other put has the strike price of $30 and currently sells for $7. Find the range of stock price on T that results in a positive profit for the investor.
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
A one-month European call option on Bitcoin is with the strike price of $8,505, $8,705, and...
A one-month European call option on Bitcoin is with the strike price of $8,505, $8,705, and $8,905 are trading at $600, $500, and $415, respectively. An investor implements a butterfly spread (i.e., she buys one call with the strike price of $8,505, sells two calls with the strike price of $8,705, and buys one call with the strike price of $8,905. If at the maturity, the Bitcoin price is $8,605, what is the investor's profit?
Sugar Land stock is selling for $47 and has the following six-month options outstanding. Strike Price...
Sugar Land stock is selling for $47 and has the following six-month options outstanding. Strike Price Option Market Price Call Option $45 $4 Call option $50 $1 e. Estimate profit and loss if the investor buys the stock and sells the call with the $50 strike price if at the expiration stock price are: $30, $50, $55, and $65 . What is the breakeven stock price at expiration for investor to make profits? f. Estimate profit and loss if the...
Verizon buys a 1.3 $/pounds strike put to hedge a 100,000 pounds AR due in 1...
Verizon buys a 1.3 $/pounds strike put to hedge a 100,000 pounds AR due in 1 month and sells 200,000 pounds in a 1.3 $/pounds strike call to offset the cost of the put. Suppose the exchange rate turns out to be 1.2 $/pounds at the expiration. What is the dollar value of the AR hedged with the options strategy. Write all calculation required
You buy a three-month put option on £1,000,000 at a strike price of $1.32/£ and a...
You buy a three-month put option on £1,000,000 at a strike price of $1.32/£ and a premium of $0.05/£. What is your total profit or loss if the spot exchange rate is $1.40/£ in three months time? Question 38 options: $80,000 profit $30,000 loss $50,000 loss $30,000 profit
An investor buys a put option on a share for $4.The stock price is $45 and...
An investor buys a put option on a share for $4.The stock price is $45 and the strike price if $40.Explain under what circumstances the investor makes a profit and under what circumstances will the option be exercised. Sketch a diagram showing the variation of the investor's profit with the stock price at the maturity of the option. (Please explain the answer in detail, thank you)
A one-month European put option on Bitcoin is with the strike price of $8,705 is trading...
A one-month European put option on Bitcoin is with the strike price of $8,705 is trading at $480. A one-month European call option on Bitcoin with the strike price of $8,705 is trading at $500. An investor shorts a straddle using these options. What is the maximum gain for this investor?
Three put options on a stock have the same expiration date and strike prices of $50,...
Three put options on a stock have the same expiration date and strike prices of $50, $60, and $70. The market prices are $3, $5, and $9, respectively. Lou buys the $50 put, buys the $70 put and sells two of the $60 puts. Lou's strategy potentially makes money (i.e. positive profit) in which of the following price ranges? $40 to $50 $55 to $65        $85 to $95      $70 to $80    
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT