Question

Stock in Cheezy-Poofs Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices of $40, $50, and $60.

Answer #1

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You are evaluating a European call option on a no-dividend
paying stock that is currently priced $42.05. The strike price for
the option is $45, the risk-free rate is3% per year, the volatility
is 18% per year, and the time to maturity is eleven months. Use the
Black-Scholes model to determine the price of the option.

XYZ Stock currently trades for $45 per share. You find the
following options matrix (prices of calls and puts) for a June 1st
expiration date (which applies for all)
40 strike call option:
$9
40 strike put option: $2
45 strike call option:
$4
45 strike put option: $4
50 strike call option:
$2
50 strike put option: $9
55 strike call option:
$1
55 strike put option: $15
You believe that XYZ will be extremely volatile in the next...

Company A’s stock is currently selling at $200 per share. A
one-year American call option with strike price $50 trading on the
Acme options exchange sells for $75.
(1) How would you take this opportunity to make a profit?
(2) Suppose the option is a European call option instead, what
is your strategy to make a profit?

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....

Xylem’s stock is currently selling at $200 per share. A one-year
American call option with strike price $50 trading on the Acme
options exchange sells for $75.
(1) (2 pts.) How would you take this opportunity to make a
profit?
(2) (2 pts.) Suppose the option is a European call option
instead, what is your strategy to make a profit?

A six month call option on Harkonnen
BioSands stock with a strike of 50 currently sells for 3. A put
option with the same strike and expiration date sells for 2. The
interest rate is 2.5 percent. Harkonnen currently sells for 52 per
share.
Given all this, explain your arbitrage strategy and how much
money you expect to make.

You bought a call option on July 27,
2020 at the exercise price of $65. It expires on October 26, 2020.
The stock currently sells for $66., while the call option sells for
$6.
A stock that is currently selling
for $47 has the following six-month options
outstanding:
Strike Price
Market Price
Call Option
$45
$4
Call Option
$50
$1
Which option(s) is (are) in the money?
Which option(s) is (are) at the money?
Which option(s) is (are) out of...

The price of DEF Corp. stock is $50 per share and the call
option on the stock has a price of $10 and an exercise price of
$45, with a time to maturity of one year. Assume the risk-free rate
is 6%.
If the volatility of the stock is 20% during the year, use the
two-state model to derive the price of the option.

A stock is currently selling for $60 per share. A call option
with an exercise price of $65 sells for $3.71 and expires in three
months. If the risk-free rate of interest is 2.9 percent per year,
compounded continuously, what is the price of a put option with the
same exercise price?

A stock is currently selling for $60 per share. A call option
with an exercise price of $67 sells for $4.49 and expires in four
months. If the risk-free rate of interest is 2.7 percent per year,
compounded continuously, what is the price of a put option with the
same exercise price?

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