Question

A put option has an exercise price of $50 per share. Suppose you sell the option for $2. Draw a graph of the payout on the option as a function of the stock price. Label the graph.

Answer #1

If you have sold the put option for $2. The strike price of the put option is $ 50 so you are betting on downside of the stock and you will not be making losses till the stock moves up $ 52.

Once the stock starts to go above $ 52, you will lose . For each $ movement in upside, the loss will magnify.

If the stock starts to move downwards,then you will be able to gain on your position and you will be able to keep the required premium and gain the premium amount entirely.

the maximum gain on this position is $2 which is premium amount, and the maximum loss on this position is unlimited.

A put option has an exercise price of $50 per share. Suppose you
sell the option for $2. Draw a graph of the payout on the option as
a function of the stock price. Label the graph.

Suppose you bought a call option for $3 with an exercise price
of $50 and another call option for $2 with an exercise price of $60
per share. Draw a graph of the payout on the investment as a
function of the stock price. Label the graph.

A call option has an exercise price of $40 per share. If you
bought the option for $3, draw a graph of the payout on the option
as a function of the stock price. Label the graph.

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...

Suppose that a European put option has a strike price of $150
per share, costs $8 per share, and is held until maturity.
a) Under what circumstances will the seller of the option make a
profit?
b) Under what circumstances will the buyer exercise the
option?
c) Draw a diagram (or a table) illustrating how the profit from
a short position in the option depends on the stock price at the
maturity of the option.

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?

A put option on 100 shares of Generous Dynamics stock has an
exercise price $50.00 per share. GD declares 2 for 1 stock split.
What happens to the exercise price and the number of shares
underlying the option?
The answer is: Number of shares increases to 200 and
the exercise price is reduced to $25.00
Can someone explain why that is the answer?

3. Suppose you buy a call and put option that has the same
strike price of $75 and same maturity. Call costs $5 and put costs
$4. Graph the profits and losses at expiration for different stock
prices? (You need to draw call and put in the same graph) If the
stock price at maturity is $80, what is your profit or loss?

•A call option has an exercise price of $50.
What is the value of the call option at expiration if the stock
price is $35? $75?
•A put option has an exercise price of $30.
What is the value of the put option at expiration if the stock
price is $25? $40?

You sold a put contract on EDF stock at an option price of $.50.
The option had an exercise price of $21. The option was exercised.
Today, EDF stock is selling for $20 a share. What is your total
profit or loss on all of your transactions related to EDF stock
assuming that you close out your positions in this stock today?
Ignore transaction costs and taxes.

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