Question

The following prices are available for call and put options on a stock priced at $60. The risk-free rate is 4 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining.

Calls |
Puts |
|||

Strike |
March |
June |
March |
June |

55 |
7.2 |
8.4 |
1.7 |
2.9 |

60 |
2.5 |
3.7 |
3.2 |
4.8 |

65 |
1.8 |
2.4 |
6.4 |
7.5 |

For questions 19 through 23, consider a bull money spread using the March 55/60 calls.

19. How much will the spread cost?

20. What is the maximum profit on the spread?

21. What is the maximum loss on the spread?

22. What is the profit if the stock price at expiration is $59?

23. What is the breakeven point?

Answer #1

Bull Money spread using the March 55/60 calls

.1. Buy March Call strike price $55:

Call premium Cost = $7.20

Sell March Call strike Price=60

Call Premium Received = $2.50

Net cost of the spread=(7.20-2.50) = $ 4.70

**Cost of Each spread of one share= $4.70**

**Cost of 100 Shares = $470**

2.Maximum profit on spread:

Gain from each Share = $5 ($60 - 55)

Gain from 100 Shares = $5 * 100 = $500

Cost of spread= $470

Net profit = $500 - 470 = $30

3.Maximum Loss on spread:

Maximum loss= cost of spread=$470

4.Profit if stock price at expiration is $59

Gain from long call at $45=(59-55)=4

Gain/loss on short call at $60=0

Gain for 100 shares=100*4=$400

Cost of spread =$470

Net Loss= Cost of spread- gain from Call = (470 - 400)=$70

5. Break even point;

**Breakeven price at expiration price=long call Strike
Price + Cost of Spread One Share = 55 + 4.70 = 59.70**

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Strike
March (calls)
June (calls)
March (puts)
June (puts)
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
Use this information to answer the following questions. Assume
that each transaction consists of...

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Calls
Puts
Strike
March
June
March
June
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
Use this information to answer the following questions. Assume
that each transaction consists of one contract...

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining. The Black-Scholes model
was used to obtain the prices.
Calls
Puts
Strike
March
June
March
June
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
. Use the June/March 50 call spread....

~~~In Excel~~~
Question 1. Common stock of a company is
selling today for $53.69. Call options on the company expiring in
1-month with strike prices of $49 and $56 are selling for $4.80 and
$0.36, respectively.
How would you form a bull call spread with the two options
(state what kind of options you would buy or sell at what strike
price to form a call spread)? What is the cost of each spread?
If you have $890 on hand,...

A stock is currently priced at $130. The following options, with
expiration in 4 months, are available:
K
c
p
120
12.80
1.85
125
8.65
3.11
130
5.05
4.85
135
2.61
7.55
140
1.10
11
Use call options with strike prices of 130 and 135 to create a
bull spread. What is the breakeven stock price (in 4 months)?

Three put options on a stock have the same expiration date and
strike prices of $55, $60, and $65. The market prices are $3, $5,
and $8, respectively. A butterfly spread is synthesized by going
long the put with strike $55, shorting two puts with strike $60 and
going long the put with strike $65. If at maturity the
price of the stock is such that , then the payoff of the
butterfly is given by:
A) S - 56
B) 64...

Suppose that call options on a stock with strike prices $300
and $345 cost $30 and $25, respectively. How can the options be
used to create a bull spread?
Call 1 – Strike $300: Position Long or short?__________
Call 2 – Strike $345: Position Long or
short?__________
I. Construct
a table that shows the profit and payoff for the spread.
II. When
is the Maximum profit? How much?
III. Draw
a diagram for the spread showing the total...

Three put options on a stock have the same expiration date and
strike prices of $50, $60, and $70. The market prices are $3, $5,
and $9, respectively. Lou buys the $50 put, buys the $70 put and
sells two of the $60 puts. Lou's strategy potentially makes money
(i.e. positive profit) in which of the following price ranges?
$40 to $50
$55 to $65
$85 to $95
$70 to $80

Three put options on a stock have the same expiration date and
strike prices of $50, $60, and $70. The market prices are $3, $5,
and $9, respectively. Harry buys the $50 put, buys the $70 put and
sells two of the $60 puts. Harry's strategy potentially makes money
(i.e. positive profit) in which of the following price ranges?
$70 to $80
$85 to $95
$40 to $50
$55 to $65

Three put options on a stock have the same expiration date and
strike prices of $55, $60, and $65. The market prices are $3, $5,
and $8, respectively. Alice buys the $55 put, buys the $65 put and
sells two of the $60 puts. For what range of stock prices would
this trade lead to a loss?
greater than $64 or less than $55.
greater than $64 or less than $56.
greater than $65 or less than $56.
greater than...

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