Call/WhatsApp/Text: +44 20 3289 5183

Question: Options basics. Figure out the payoff and the profit per share in A-C: A. You sell a 47 put for 4. Stock ends at $48. Payoff=……………. Profit=………………………. B. You sell a 54 put for 4. Stock ends at $47. Payoff=………….…. Profit=…….………………. C. You sell a 50 put for 3, and buy a 45 put for 2. Stock ends at $45. Payoff=……………. Profit=………………………. D. You buy a 52 put when the stock trades at 49. Intrinsic Value= …………. Premium > …………………….

20 Oct 2022,12:00 AM

 

EXERCISE #1: Options basics. Figure out the payoff and the profit per share in A-C:

 

  1. You sell a 47 put for 4. Stock ends at $48.

 

Payoff=……………. Profit=……………………….

 

  1. You sell a 54 put for 4. Stock ends at $47.

 

Payoff=………….…. Profit=…….……………….

 

  1. You sell a 50 put for 3, and buy a 45 put for 2. Stock ends at $45.

 

Payoff=……………. Profit=……………………….

 

  1. You buy a 52 put when the stock trades at 49.

 

Intrinsic Value= …………. Premium > …………………….

 

 

EXERCISE #2: Draw a payoff and profit diagram for a long straddle: we are buying a 50 put for 6 and a 50 call for 4.

 

 

EXERCISE #3: Consider the following binomial tree. The numbers in squares are stock prices. The numbers in circles are option prices. Today, the stock is at 50 and can go up and down over the next week, and then again up and down from there. We are pricing a call struck at 46. Fill in the call values in the circles. Start by filling the three payoffs of the call at expiry (the last time layer).

 

Trace the hedge through the tree to show that no matter which path the stock takes, the hedge will produce the desired payoff of the call. Be able to answer what you buy and sell at each time and what your borrowing/lending is at each price/time node.

 

Answer the following questions:

What is the price of the call? Call = $ ........................

 

You sold a call on one share. Your delta hedge will cause you to borrow $............................................................. net of the premium

you received.

 

One period later when the stock drops to $44, you adjust your delta hedge. After the re-hedging, your net borrowing is $...........................

 

One period later, the stock goes up to $56 instead. At that time, your delta will change. To cover the change in the delta, you will borrow additional $............................................................. to spend it on buying more shares.

 

EXERCISE #4: Optional: Put-Call Parity:                       C – P = S – PV(K),                PV(K) = K / (1+r) A-B. The stock is at 50. One-year interest rates are at 3%.

  1. A one-year call struck at 52 trades at $4. What must be the price of a one-year 52 put?

 

$ …………………………………………………………………

 

 

  1. A one-year call struck at 50 trades at $5. What must be the price of a one-year 50 put?

 

$ …………………………………………………………………

 

 

  1. The stock is at 51. The strike is 55. A one-year call struck at 51 trades at $4. A one-year

put struck at 55 trades at 1.38. What must be the interest rate?

 

……………………………………………… %

 

 

EXERCISE #5: Optional: Option Strategies.

 

Fri, Feb 22 Data on UTX: Stock closes at $90.49 Jan 2014 K=100 Calls: Bid 2.25/ Ask 2.34

Jan 2014 K=85 Puts:                     Bid 5.10/ Ask 5.20

 

You own 1000 UTX worth $90,490. You are afraid the stock might drop precipitously. You sell 10 K=10 calls for $2.25/share. You receive $2,250.

You buy 10 K=85 puts for $5.20/share. You pay $5,200.

Net you pay $2,950.

 

In Jan2014 stock is at         S=

70

80

97

Gain/Loss on Stock

 

 

 

Gain/Loss on Option

 

 

 

 

Expert answer

         
         
Exercise #1        
Part A        
Strike price       47.00      
Premium received         4.00      
Spot price at expiry       48.00      
         
Payoff             -    
Profit         4.00  

Consider the following binomial tree. The numbers in squares are stock prices. The numbers in circles are option prices. Today, the stock is at 50 and can go up and down over the next week, and then again up and down from there. We are pricing a call struck at 46. Fill in the call values in the circles. Start by filling the three payoffs of the call at expiry (the last time layer).

 

Consider the following binomial tree. The numbers in squares are stock prices. The numbers in circles are option prices. Today, the stock is at 50 and can go up and down over the next week, and then again up and down from there. We are pricing a call struck at 46. Fill in the call values in the circles. Start by filling the three payoffs of the call at expiry (the last time layer).

Exercise #1    
Part A    
Strike price       47.00  
Premium received         4.00  
Spot price at expiry       48.00  
     
Payoff             -    
Profit         4.00  
Stuck Looking For A Model Original Answer To This Or Any Other
Question?

Related Questions

A 32-year-old female presents to the ED with a chief complaint of fever, chills, nausea, vomiting, and vaginal discharge

Scenario 1: A 32-year-old female presents to the ED with a chief complaint of fever, chills, nausea, vomiting, and vaginal discharge. She states these symptoms started about 3 days ago, but she thought she had the flu. She has begun to have LLQ pain and notes bilateral lower back pain. She denies dysuria, foul-smelling urine, or frequency. States she is married and has sexual intercourse with her husband. PMH negative. Labs: CBC-WBC 18, Hgb 16, Hct 44, Plat 325, ­ Neuts & Lymphs, sed rate 46 mm/hr., C-reactive protein 67 mg/L CMP wnl Vital signs T 103.2 F Pulse 120 Resp 22 and PaO2 99% on room air. Cardio-respiratory exam ...
You work in the Department of Foreign Affairs and Trade of Australia. Your department will.....

Problem Description: You work in the Department of Foreign Affairs and Trade of Australia. Your department will be hosting a workshop on the Global Value Chains, challenges, and opportunities for Australia, with participants from academia, industry, government, and non-profit organizations. To prepare for this workshop, you plan to first write a report on GVCs by giving a relevant example. To appeal to the audience, you wish to focus on a GVC in which Australia participates, that is, Australian inputs are used to produce (deliver) final products (services). Your report should: Give an example of GVC which involves at least three ...
Critically examine the memorialisation or commemoration of an event said to be defining of a given society’s collective.......

  Select a relevant piece of artwork (i.e. documentary, exhibition, film) and/or artist and critically assess the artist’s/artwork’s contribution to understandings of how societies remember.   OR   Critically examine the memorialisation or commemoration of an event said to be defining of a given society’s collective or social memory, in which digital technologies/media/archives are seen as highly significant in the formation of remembrance.     DRAFT / STUDY TIPS: The Role of Digital Technologies in the Memorialization of Collective Memory: A Critical Examination Introduction Memorialization and commemoration are crucial aspects ...
You hold the HR directorship of a local company in Durham, which employs 100 workers

You hold the HR directorship of a local company in Durham, which employs 100 workers (all in a managerial position). The company usually offered an incremental pay rise of 3 per cent every year. It also offered some benefits such as health insurance, life insurance, and private pension plan. The cost of living and the high inflation are influencing the organisational revenue. You were asked to rethink the Employee Rewards including the pay rise and the benefit system and to consider withdrawing the private pension plan. Based on that information please answer the following:   1)    What external influences do ...

What Clients Say About Us

Copyright © 2012 - 2024 Apaxresearchers - All Rights Reserved.

WhatsApp us