Question

Suppose you construct the following European option trades on Apple stock: purchase a put option with exercise price $83 and premium $2.79, and purchase a call option with exercise price $95 and premium $4.19. What is your maximum dollar net loss, per share?

Answer #1

Suppose you construct the following European option trades on
Apple stock: write a put option with exercise price $33 and premium
$1.57, and write a call option with exercise price $33 and premium
$4.29. What is your maximum dollar net profit, per share?

Suppose you construct the following European option trades on
Microsoft stock:
purchase a call option with an exercise price of $28 and a premium
of $12 and
write a call option with an exercise price of $62 and a premium of
$6. What is your maximum dollar net profit, per share?

1. Tucker Inc. common stock currently trades for $90/share.
6-month European put options on the stock have an exercise price
and premium of $93 and $4, respectively. The annual risk free rate
is 2%. What should be the value of a 6-month European call option
on the stock with an exercise price of $93 according to put-call
parity? Round intermediate steps to four decimals and your final
answer to two decimals.
a. 7.90
b. 0.065
c. 1.93
d. 2.84
e....

5. A put option in finance allows you to sell a share of stock
in the future at a given price. There are different types of put
options. A European put option allows you to sell a share of stock
at a given price (called the exercise price) at a particular point
in time after the purchase of the option. For example, suppose you
purchase an eight-month European put option for a share of stock
with an exercise price of...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) Before expiration, only in-the-money options can have
positive time premium.
B) If you have a portfolio of protected put, you can replicate
that portfolio by long a call and hold certain amount of risk-free
bond.
C) Since both the call and the put are risky assets, the
risk-free interest rate...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) When the call option is in-the-money and the put option is
out-of-the-money, the stock price must be lower than the strike
price.
B) The buyer of the call option receives the same premium as the
writer of the put option.
C) Since both the call and the put are risky...

You want to price a European call option on stock X, which
currently trades at $40 per share (this stock does not currently
pay dividends). Suppose there are two possible outcomes for share
prices of stock X next period: It can go up by 15%, or it can drop
by 10%.
The option expires in one period, and has a strike price of $41.
The risk-free rate over the next period is 5% (you can lend and
borrow at the...

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...

Suppose that an investor initially purchases put options on 4000
Apple shares with an exercise price of 100 dollars per share. The
cost of the put option is 10 dollars per share. Then at a later
date, she purchases call options on 3000 Apple shares with an
exercise price of 120 dollars per share and the same expiration
date as the put options above. The cost of the call option is 7
dollars per share.
a) Determine the total cost...

2. Suppose you purchase a put option to sell IBM common stock at
$100 per share in September. The current price of IBM is $85 and
the option premium is $10.
a. What is the intrinsic value of this option? As the expiration
date on the option approaches, what will happen to the size of the
option premium?
b. What would be in intrinsic value if this was a call
option?

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