Question

The spot offer price of a certain stock is $882.4. The offer price of a call...

The spot offer price of a certain stock is $882.4. The offer price of a call option with a strike price of $880 and a maturity date of September is $43.50. A trader is considering two alternatives: Buying 10 shares of the stock or buying 100 September call options. For each alternative, calculate the following:

(a) Upfront cost

(b) Total gain if the stock price in September is $930

(c) Total loss if the stock price in September is $820

Assume that the option is not exercised before September. If stock is purchased using the call, it is immediately sold in September.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Upfront cost = $13,174

2.Total profit=$1,126

3. Total loss =$4,974

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
The price for Google stock is $1,400 on June 6. A trader considers two alternatives: buy...
The price for Google stock is $1,400 on June 6. A trader considers two alternatives: buy 100 shares of the stock or buy 100 European call options on Google for $100 each with a strike price of $1,440 and maturity date of December 2020. For each alternative, what is: a) the upfront cost? b) the total gain if the stock price at maturity is $1,650? c) the total loss if the stock price is $1,100 at maturity?
can someone explain? The stock price of Lotus is currently $220 and the call option with...
can someone explain? The stock price of Lotus is currently $220 and the call option with strike price of $220 is $10. A trader purchases 100 shares of Lotus stock and short 1 contract of call options with strike price of $220. As a financial analyst at Citibank, you want to answers the following two questions: a.         What is the maximum potential loss for the trader? b.         When the stock price is $240 and the call is exercised, what is the trader’s...
A trader sells a European call option on a share for 4 SEK. The stock price...
A trader sells a European call option on a share for 4 SEK. The stock price is 47 SEK and the strike price is 50 SEK. Under what circumstances does the trader make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the trader’s profit with the stock price at the maturity of the option. Please carefully label: Breakeven point, profit, loss and don't forget the diagram.. thanks in advance!
. Suppose that a March call option on a stock with a strike price of $...
. Suppose that a March call option on a stock with a strike price of $ 50 costs $ 2.50 and is held until March. Under what circumstances will the holder of the option make a gain? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.
A trader is purchasing three European call options with a strike price of $45 and two...
A trader is purchasing three European call options with a strike price of $45 and two put options on the same stock with a strike price of $50. Both options have the same maturity date. The price of the call option is $5, while the price of the put option is $4. Create a table and a diagram illustrating the profit at termination from these positions for various levels in the price of the underlying. On one chart draw a...
The price of a stock is $75. A trader sells 6 put option contracts (each contract...
The price of a stock is $75. A trader sells 6 put option contracts (each contract of 100) on the stock with a strike price of $78 when the option price is $5. The options are exercised when the stock price is $74. What is the trader’s net profit or loss? Solve in following 4 steps. a) Option profit ? b) Trader’s gain per option ? c) Total options sold ? d) Trader’s total gain ?
conceptually, a call option is a small payment (called option premium) to secure a certain price...
conceptually, a call option is a small payment (called option premium) to secure a certain price for an asset at a certain date. When that date comes, you can either purchase the asset for that certain price or just walk away. There is no obligation. All options contracts are specified by the expiration date, premium paid, strike price, and the direction (call or put). A call option is a bet on price increase and a put option is a bet...
5.1. A one-year call option on a stock with a strike price of $45 costs $3;...
5.1. A one-year call option on a stock with a strike price of $45 costs $3; a one-year put option on the stock with a strike price of $45 costs $5. Suppose that a trader buys five call options and three put option. What is the breakeven stock price above which the trader makes a profit?
The price of a stock (S0) is $75. A trader sells 6 (N) put option contracts...
The price of a stock (S0) is $75. A trader sells 6 (N) put option contracts (each contract of 100) on the stock with a strike price (K) of $78 when the option price (c) is $5. The options are exercised when the stock price (S1) is $74. What is the trader’s net profit or loss? Solve in following 4 steps. a) Option profit ? b) Trader’s gain per option ? c) Total options sold ? d) Trader’s total gain...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT