Question

if you are an investor and the options market is normal backwardation option you will buy

Answer #1

Normal backwardation is when the forward price of a commodity or an asset future price is lower than its spot price, contrary to that contango is when spot price is lower and future price is higher.

When in normal backwardation you are expecting that the future price will fall so you should buy put option and sell call option. By selling call option you can earn premium since the price will be lower than the strike price. By buying a put option you can limit your loss to at certain extent.

If you are an investor and the options market is normal,
Contango and Basis are upward sloping; what kind of option will you
buy?

An investor has the following two options:
To buy a two-year $1,000 zero-coupon bond at a market price of
$860, or:
To buy a two-year $1,000 bond with an annual interest of 3% at
a market price of $900.
Assuming annual coupon payments, which option do you think the
investor should choose? Explain why.

You buy a put option with strike price of $40 and simultaneously
buy two call options with the same strike price, $40. Currently,
the market value of the underlying asset is $39. The put option
premium is $2.50 and a call option sells for $3.25. Assume that the
contract is for 1 unit of the underlying asset. Assume the interest
rate is 0%. Draw a diagram depicting the net payoff (profit
diagram) of your position at expiration as a function...

1. Why would an investor buy a put option in a stock that they
already own?
2. How do you work out the intrinsic value of a call option?
3. Briefly explain what is the Efficient Market Hypothesis and
why is it important for investors

You take a speculative position in two options. You buy a call
option and you buy a put option on firm XYZ The call option has a
strike price of $50 and you pay a premium of $4. The put option
also has a strike price of $50 and you pay a premium of $4. Both
options expire at the same time in three months from now.
1. You are betting that the stock price of XYZ:
A) Will remain...

An investor considers investing 100 000 TL for the next year.
This investor has 3 options. The first option is to buy a
government bond that sells 100 TL. The par value of this government
bond is also 100 TL and the remaining maturity is 1 year. This
government bond pays %20 annual coupon interest. The second option
is to buy a commercial paper which sells 2200 TL discount. The par
value is 10 000 TL and the maturity is...

You buy a call option and buy a put option on bond X. The strike
price of the call option is $90 and the strike price of the put
option is $105. The call option premium is $5 and the put option
premium is $2. Both options can be exercised only on their
expiration date, which happens to be the same for the call and the
put.
If the price of bond X is $100 on the expiration date, your...

1. You buy a put option with strike price of $25. Currently, the
market value of the underlying asset is $30. The put option premium
is $3.25. Assume that the contract is for 150 units of the
underlying asset. Assume the interest rate is 0%. a. What is the
intrinsic value of the put option? b. What is the time value of the
put option? c. What is your net cash flow if the market value of
the optionsâ€™ underlying...

-Suppose the underlying stock is priced at $23.5, you perform
the following 4 options trades: Buy a call option with strike price
of 27.5 at $1.5 Sell a call option with strike price of 25 at $2
Buy a put option with strike price of 20 at $1.5 Sell a put option
with strike price of 22.5 at $1.5 Draw the net payoff diagram of
the strategy and explain in what direction of the market this
strategy will be profitable?

Executive stock options:
A.
Allow the holder the option to buy shares at a specified exercise
price during a specified period of time.
B. Allow the holder the option to buy shares at a
specified exercise price any time prior to the executive ceasing to
be employed by the firm.
C. Are expensed at their intrinsic value.
D.
Permit executives to purchase restricted stock.

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