Question

Suppose you construct the following European option trades on Apple stock: write a put option with exercise price $33 and premium $1.57, and write a call option with exercise price $33 and premium $4.29. What is your maximum dollar net profit, per share?

Answer #1

The strategy of simultaneous selling of call and put option of same underlying stock, strike price and expiration date is called short straddle. It is a limited profit and unlimited risk strategy used by traders used by traders when they think that the underlying stock would experience very little price movements.

Here the trader would achieve maximum profit when the price of underlying stock = Strike price of call/put.

Maximum profit for Trader would be premium received while writing put and call option.

Therefore maximum dollar net profit per share would be $1.57+ $4.29 i.e $5.86

Suppose you construct the following European option trades on
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Suppose you construct the following European option trades on
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1. Tucker Inc. common stock currently trades for $90/share.
6-month European put options on the stock have an exercise price
and premium of $93 and $4, respectively. The annual risk free rate
is 2%. What should be the value of a 6-month European call option
on the stock with an exercise price of $93 according to put-call
parity? Round intermediate steps to four decimals and your final
answer to two decimals.
a. 7.90
b. 0.065
c. 1.93
d. 2.84
e....

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...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) Before expiration, only in-the-money options can have
positive time premium.
B) If you have a portfolio of protected put, you can replicate
that portfolio by long a call and hold certain amount of risk-free
bond.
C) Since both the call and the put are risky assets, the
risk-free interest rate...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) When the call option is in-the-money and the put option is
out-of-the-money, the stock price must be lower than the strike
price.
B) The buyer of the call option receives the same premium as the
writer of the put option.
C) Since both the call and the put are risky...

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pay dividends). Suppose there are two possible outcomes for share
prices of stock X next period: It can go up by 15%, or it can drop
by 10%.
The option expires in one period, and has a strike price of $41.
The risk-free rate over the next period is 5% (you can lend and
borrow at the...

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3.From now on, assume you bought 1...

The current price of a stock is $40. The price of a one-year
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options.
a) Construct a payoff and profit/loss table
b) Draw a diagram illustrating how the...

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