Question

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?

Answer #1

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Suppose you construct the following European option trades on
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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?

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
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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...

Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
Use put-call parity to explain how would you construct a
European...

You have taken a long position in a call option on IBM common
stock. The option has an exercise price of $176 and IBM’s stock
currently trades at $180. The option premium is $5 per contract.
(LG 10-4)
How much of the option premium is due to intrinsic value
versus time value?
page 350
What is your net profit on the option if IBM’s stock price
increases to $190 at expiration of the option and you exercise the
option?
What...

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....

Suppose a European call option to buy a share for $22.50 costs
$1.75. The stock currently trades for $20.00. If the option is held
to maturity under what conditions does the holder of the option,
make a profit? Note: ignore time value of money. How would the
answer change if this was an American call option?
Please show work

You buy one contract for a 6-month European call option in June
2010 for $1.25 with exercise price of $18.00. On September 1, 2010,
the stock reaches its 52-week low at $12.65 per share. On December
16, 2010, the stock is selling at $16.75. What is your profit or
loss on the purchase?

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
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C) Since both the call and the put are risky assets, the
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For a European call option and a European put option on the same
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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...

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