Question

- The current price of one share of NewTech Inc. (NTI) 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. Smith and Armstrong Holding (SAH) has asked you to act on its behalf and purchase 100 shares of NTI stock, short 100 call options, and buy 100 put options.

A)Draw a diagram illustrating how the SAH’s profit or loss varies with NTI’s stock price over the next year.

B)How does your answer change if instead SAH direct you to purchase 100 shares of NTI stock, short 200 call options, and buy 200 put options?

Explanation in excel, please?

Answer #1

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...

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.
Draw a diagram illustrating how the investor’s profit or loss
varies with the stock...

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sell, buy, short-sell, lend
buy, sell, buy, lend
sell, buy, short-sell, borrow
buy, sell, buy, borrow

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The current price of Stock A is $305/share. You believe that the
price will change in the near future, but your are not sure in
which direction. To make a profit from the price change, you
purchase ONE call option contract (each contract has 100 calls) and
TWO put option contracts (each contract has 100 puts) at the same
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3. You purchased 100 shares of JNJ stock at $50 per share. The
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OPTIONS;
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B. place a stop-loss order at $43
C. place a limit buy order at $53
D. place a limit sell order at $47
E. none of the above
4.
Which of...

1. Luther Industries is currently trading for $28 per share. The
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with a strike price of $30 is currently trading for $2.55. If the
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The price of one-year European call option on Luther
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decimal places)....

A trader is purchasing three European call options with a strike
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Create a table and a diagram illustrating the profit at termination
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