Question

Walmart stock is currently trading at $95 per share. A call option on Walmart with an exercise price of $80 is trading at $17.50. Tessa wants to sell a call option on Walmart without actually owning the stock, how much margin will you be required to put?

Answer #1

**Answer**: In a short sale, investors sells the
stocks at higher price and buys it back at lower price and
difference is the profit.

Call option- It is bought when investor is bullish towards a particular security or index.

Shorting call option- If an investor is bearish towards a particular stock, he sells the call and when call comes down and expires, he get the profit, his profit is limited to the premium received in selling call option.

In this strategy, he sells a call of Walmart of strike price 80 at $17.50, he needs to deposit 150% margin in short position, short position is risky because risk is unlimited and gain is limited.

**Total margin required in shorting the Call: 80 * $17.50
* 150% = $2100**

**100% full margin and additional 50%
margin**

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?

1. Luther Industries is currently trading for $28 per share. The
stock pays no dividends. A one-year European put option on Luther
with a strike price of $30 is currently trading for $2.55. If the
risk-free interest rate is 6% per year, compute the price of a
one-year European call option on Luther with a strike price of
$30.
The price of one-year European call option on Luther
with a strike price $30 is ______$ (round to four
decimal places)....

A stock is currently selling for $81 per share. A call option
with an exercise price of $83 sells for $4.05 and expires in three
months. If the risk-free rate of interest is 3 percent per year,
compounded continuously, what is the price of a put option with the
same exercise price? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Put price $

A stock is currently selling for $74 per share. A call option
with an exercise price of $79 sells for $3.70 and expires in three
months.
If the risk-free rate of interest is 3.4 percent per year,
compounded continuously, what is the price of a put option with the
same exercise price? (Do not round intermediate
calculations and round your final answer to 2 decimal places.
(e.g., 32.16))
Put price
$

A
stock is trading for $78 per share and the July 80 call is trading
for $1.25. What is the profit or loss in dollars and in percentage
for both the stock and the option if the stock increases to $85 per
share at July expiration (call will trade at its intrinsic value at
expiration)? What is the loss in price and percentage for the stock
and the option if the stock falls to $70 per share at July
expiration?

If a call option buyer is exercising her call option and buys a
share of underlying stock at exercise price, from whom does she buy
this share of stock?
If a put option buyer is exercising her put option and sells a
share of underlying stock at exercise price, to whom does she sell
this share of stock?

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?

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?

38. Calvin Industries is currently trading for $27 per share.
The stock pays no dividends. A one-year European put option on
Calvin with a strike price of $30 is currently trading for $2.60
and a one-year European call option on Calvin with the same strike
price and remaining time to maturity as the European put is trading
for $1.30. The annual risk-free rate comes closest to: A) 5.7%. B)
5.8% C) 5.9% D) 6% Ans: D

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