Question

You buy a put option with strike price of $40 and simultaneously buy two call options...

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 of the market value of the underlying asset. Upload a picture of your diagram. Be sure to indicate the break-even points.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

I have made this diagram on my phone excel. I wasn't getting an option to name Y axis as Profit Loss and X axis as Market Price. Also unable to highlight the breakeven point which is clearly visible between 44 and 45. Hope you understand and can do it now.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. You buy a put option with strike price of $25. Currently, the market value of...
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 options’ underlying...
You buy a call option and buy a put option on bond X. The strike price...
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 stock for $40 and simultaneously buy a put with a $40 strike...
1. You buy a stock for $40 and simultaneously buy a put with a $40 strike price and a $1.00 premium and write a call with a $40 strike price and a $1.00 premium. What is your per-share net premium? If you think the net premium is negative, enter your answer using a number preceded by a minus sign. If you think the net premium is positive, enter your answer as a number. 2. You buy a stock for $40...
Suppose you buy a stock, buy a put option with a strike price of $80 on...
Suppose you buy a stock, buy a put option with a strike price of $80 on the stock, and write a call option on the stock with a strike price of $100. What is the total payoff (not profit) if the stock price at expiration is $125?
Suppose you buy a call option with a strike price of $105. If the price of...
Suppose you buy a call option with a strike price of $105. If the price of the underlying stock at expiration is $90, which of the following is the best and correct choice? a) You should receive a payoff of -$15 by exercising the option. b) You should receive a payoff of $15 by exercising the option. c) You should receive a payoff of $15 by not exercising the option. d) You should receive a payoff of zero by not...
1. A put option has strike price $75 and 3 months to expiration. The underlying stock...
1. A put option has strike price $75 and 3 months to expiration. The underlying stock price is currently $71. The option premium is $10. "What is the time value of the put option? Would this just be 0? Or: 71-75=-4 then 10-(-4)= 14? 2. The spot price of the market index is $900. After 3 months, the market index is priced at $920. An investor had a long call option on the index at a strike price of $930...
You buy a put option on one unit of the underlying asset. The option has a...
You buy a put option on one unit of the underlying asset. The option has a premium of $3.50 and a strike price of $15. As the option is about to expire, the underlying asset is worth $21.70. What will your net payoff be?
1. You buy a stock for $50 and simultaneously write a call with a strike price...
1. You buy a stock for $50 and simultaneously write a call with a strike price of $51 and a premium of $0.50 per share. If the stock price falls to $48 per share, what is your per-share net profit? If you think net profit is negative, enter your answer using a number preceded by a minus sign. If you think net profit is positive, enter your answer as a number. 2. You buy a stock for $40 and simultaneously...
As the writer of a call option with a strike price of $500 and an option...
As the writer of a call option with a strike price of $500 and an option premium of $50, how much will you gain/lose if at the maturity of the contract the value of the underlying asset is $450? Group of answer choices 50 500 -450 0
1. A trader buys a call option with a strike price of €45 and a put...
1. A trader buys a call option with a strike price of €45 and a put option with a strike price of €40. Both options have the same maturity. The call costs €3 and the put costs €4. Draw a diagram showing the variation of the trader’s profit with the asset price. Explain the purpose of this strategy
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT