Question 1 A call option costing $6 and a put option costing $4 are available, both with a strike price of $60. You decide to purchase both together such that your total cost will be $10. Given this information; a) Complete the table below: Stock Price $45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 65 69 70 75 80 85 90 95 100 Intrinsic Value of the Call Call Profit Intrinsic Value of the Put Put Total Total Profit Payoff Profit b) Within what range of stock prices, will there be a loss? c) Plot a graph measuring the stock prices on the horizontal axis and total profit on the vertical axis

Question 1 A call option costing $6 and a put option costing $4 are available, both with a strike price of $60. You decide to purchase both together such that your total cost will be $10. Given this information; a) Complete the table below: Stock Price $45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 65 69 70 75 80 85 90 95 100 Intrinsic Value of the Call Call Profit Intrinsic Value of the Put Put Total Total Profit Payoff Profit b) Within what range of stock prices, will there be a loss? c) Plot a graph measuring the stock prices on the horizontal axis and total profit on the vertical axis

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter8: Financial Options And Applications In Corporate Finance

Section: Chapter Questions

Problem 8SP

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A call option costing $6 and a put option costing $4 are available, both with a strike price of $60. You decide to purchase both together such that your total cost will be $10. Given this information; Complete the table below: Stock Price $45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 65 69 70 75 80 85 90 95 100 Intrinsic Value of the Call Call Profit Intrinsic Value of the Put Put Profit Total Payoff Total Profit
Whats the profit of the "Straddle" when stock price is $15, $20, $25, $30, $35, $40, $45, $50, $55, and $60 respectively? Given: - Stock price = $35.00 - Call option price = $3.00 - Put option price = $2.00 - Exercise Price = $35.00
Options2. Construct profit diagrams at expiration time to show what position in META puts, calls and/or underlying stock best expresses the investor’s objectives described below. META currently sells for $210 so that profit diagrams between $150 and $250 in $10 increments are appropriate. Assume that at-the-money puts and calls currently cost$30 each. The call with strike $190 costs $40 and the call with strike $230 costs $20. (a) An investor wants to benefit from META price drops but does not want to lose more than $30 on the investment. (b) An investor wants to have a positive payoff if the upcoming META earnings announcement is close to market expectations—meaning that the price will not move by more than $20 dollars.
Label the following for this diagram: a. Name of options payoff b. Identify whether positive or negative premium c. Identify break-even point d. What is the profitt or loss when stock price is $60 at maturity e. If you have this option position, should you exercise your right (if any) assuming that the stock price is $60 at maturity? Option Payoffs and Profits $40 $20 $0 Option Payoff Option Profit --- Exercise Price -$20 -$40 $0 $20 $40 $60 $80 Stock Price At Maturity Payoff and Profit
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I2 Consider a pair of call and put options with the same expiration date but different strike prices. Theput option has a strike price of $45 and is currently priced at $6.00. The call option has a strike priceof $35 and is currently trading at a price of $6.50. The current stock price is $40 per share. A traderis evaluating a trading strategy involving the following option positions: Long 1 put options (with strike price $45) Long 2 call option (with strike price $35) a)Draw a figure/graph illustrating the profit/loss of the trading strategy. Make sure you scale and labelall the lines and points properly so that gains and losses are clearly shown.b)For what range of stock prices would the trader end up with a profit if the strategy is executed?c)Discuss the main characteristics of this strategy. When is it appropriate to use such a strategy?
Ningbo Industrial Concepts Incorporated Initial stock price $115.00 Exercise price $115.00 Call price $4.75 Put Price $4.50 Required: Using the information in the table above, please calculate dollar value of the following option strategies. Use this calculated dollar value to determine the profit of each strategy at various stock prices. (Use cells A3 to B6 from the given information to complete this question. Negative answer should be input and displayed as a negative value. All other answers should be input and displayed as positive values.) Ningbo Industrial Concepts Incorporated Dollar Value of Strategy as a Function of Current Stock Price Strategy $95.00 $105.00 $115.00 $125.00 $135.00 Straddle Strip Strap Ningbo Industrial Concepts Incorporated Rate of Return…
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