What is the difference between straddle

The pay off from an option depends on the market price of the underlying asset a) a put holder benefits from increase in the price b)a put writer benefits from an increase in the price  c) a call holder benefits from decrease in price  d) none of these are true

Compared to short hedging, the advantage to using a put option is: A. Put options involve a one-time fixed payment and no need for a margin account B. Put options provide a form of "price insurance" and protect from a worst case scenario C. Put options allow for additional price gains if futures market prices continue to increase D. All the above are advantages to using puts instead of short hedging

If you have long position in one asset and you want to hedge the risk of price drop in that asset while still having the upside in case the asset price goes up, what sort of derivative trading will you do? Explain in brief with payoff diagram.

Compared to long hedging, the advantage to using a call option is: A. Call options involve a one-time fixed payment and no need for a margin account B. Call options provide a form of "price insurance" and protect from a worst case scenario C. Call options allow for additional price gains if futures market prices continue to decline D.  All the above are advantages to using puts instead of short hedging

Let C be the price of a call option to purchase a security whose present price is S.  Explain why C is less than or equal to S.   I'm just thinking it wouldn't make financial sense to pay more for the call option than the present price of the security.  I'm not sure if there is more of an explanation that is needed.  I was also wondering is there any time when it would be favorable to pay more for the call option than the present price of the security?

Give typing answer with explanation and conclusion

Q (a) A put and a call have the same maturity and strike price. If they have the same price, which one is in the money? Prove your answer and provide an intuitive explanation.  (b) You find a put and a call with the same exercise price and maturity. What do you know about the relative prices of the put and call? Prove your answer and provide an intuitive explanation. Please explain step by step. I have seen other answers but still very confused.

Please choose an answer from the following options:   1: Asset B   2: Asset C   3: All of the assets are correctly priced   4: Asset A

The premium on a put option is primarily a function of the difference in spot price S relative to the strike price X, the time until maturity T, and the volatility of the currency o. P = f(S-X, T, o) For each characteristic of a put option, use the table to indicate whether that would lead to a higher put option premium or a lower put option premium (all else equal). Characteristic A lower spot price relative to the strike price A shorter time before expiration A higher level of volatility for the currency Higher Put Option Premium Lower Put Option Premium When using a put option to hedge receivables in an international currency, a U.S. based MNC can lock in the receive. minimum maximum amount of dollars it will

Identify the correct statement related to the choice of exercise price for buying a call. Select one: O a. the higher the exercise price the higher the call premium O b. the lower the exercise price the more likely the call option will expire out-of-the-money O c. A higher strike price results in smaller gains on the upside but smaller losses on the downside O d. the higher the exercise price the more dividends contribute to the overall profit

My question is for a synthetic call option why do we need to borrow the present value of the strike price and what does it mean in a simple language explanation. Similarly why do we need to lend the present value of the stock at risk-free rate and what does it mean in simple language explanation?  Please also clarify the significance of risk free rate? Why is it used in put call parity.   Synthetic Call Option: If an investor believes that a call option is over-priced, then he/she can sell the call on the market and replicate a synthetic call. Borrow the present value of the strike price at the risk free rate and purchase the underlying stock and a put. Synthetic Put Option: Similar to the synthetic call option. A synthetic put can be created by re-arranging the put-call parity relationship, if the trader believes the put is overvalued. Synthetic Stock: A synthetic stock can also be created by rearranging the put-call parity identity. In this case, the investor will buy the…

Suppose that C is the price of a European call option to purchase a security whose present price is S.Show that if C > S then there is an opportunity for arbitrage (i.e. riskless profit). You may assume theinterest rate is r = 0 so that present value calculations are unnecessary.

a) If you must buy some asset in future and you just want to hedge the risk what sort of derivative trading will you do? Explain in brief with payoff diagram. b) If you have long position in one asset and you want to hedge the risk of price drop in that asset while still having the upside in case the asset price goes up, what sort of derivative trading will you do? Explain in brief with payoff diagram. c) Briefly explain the benefits of having a thriving capital markets even in an economy like India where banking system provides most of the funding to firms. d) What are the four types of traders? Name two types who facilitate the price discovery process and briefly state how do they facilitate?

The premium on a call option is primarily a function of the difference in spot price S relative to the strike price X, the length of time until expiration T, and the volatility of the currency o. C = f(S-X, T, o) For each characteristic of a call option, use the table to indicate whether that would lead to a higher call option premium or a low call option premium (all else equal). Characteristic A lower spot price relative to the strike price A shorter time before expiration A higher level of volatility for the currency Higher Call Option Premium O Lower Call Option Premium When using a call option to hedge payables in an international currency, a U.S. based MNC can lock in the to obtain the needed foreign currency. maximum minimum amount of dollars needed

As a call option is an option to buy and a put option an option to sell, the opposite position to buying an option to buy is buying an option to sell. Therefore, any factor that increases the value of a call option will decrease the value of a put option written on the same asset. Identify whether it is TRUE or FALSE. Why? Give an explanation.

Explain why the price of a put option is higher when the strike price is higher.

Suppose you want to establish a bullish spread strategy. The are two call options. The first one has X1=$50 and C1=$5. The second one has X2=$42 and C2=$6. When the underlying asset price is S(t)=$45, what is the profit from the strategy? What is the maximum profit of the strategy? What is the minimum payoff of the strategy?

To hedge, a user of an energy resource wants price protection from rising prices. The user decides to buy a call option to protect against rising prices. But they want a lower cost of hedging and decide to construct a collar strategy.  What other action should they take along with the purchase of the call option? Buy a call option Sell a call option Buy a put option Sell a put option None of the above

Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.

Suppose that C is the price of a European call option to purchase a security whose present price is S. Show that if C>S then there is an opportunity for arbitrage (i.e. risk-less profit).  You may assume the interest rate is r=0 so that the present value calculations are unnecessary.

Which of the following best describes the terms 'long position' and 'short position' in trading?   A long position means expecting the asset's price to rise, and a short position means expecting it to fall.   A short position is when a trader borrows an asset to sell, hoping to buy it back at a lower price, while a long position is when a trader buys an asset expecting its price to rise.   A long position is when a trader sells an asset immediately, while a short position is holding it for a longer period.   A long position indicates selling an asset, while a short position indicates buying it.

Suppose that C is the price of a European call option to purchase a security whose present price is S.  Show that if C>S then there is an opportunity for arbitrage (ie. riskless profit).  Assume the interest rate r=0 so present value calculations are unnecessary.

When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market,fixed-interest payments declines, so the market value of the investment falls. On the other hand, if market ratesof interest fall after a fixed-rate security is purchased, the fixed-interest payments become relatively attractive,and the market value of the investment rises. Assuming these price changes are not viewed as giving rise to another-than-temporary impairment, how are they reflected in the investment account for a security classified asheld-to-maturity?

Real Options & Game Theory: The value of a call option and a put option is influenced by the following variables: - Underlying asset value- Strike Price- Variance of Underlying asset- Time to Expiration What effect would an increase in each of these variables have on the value of a calloption and a put option?

which one is correct please confirm? Q2" Which of the following strategies will be profitable if the price of the underlying asset is expected to decrease? (There may be more than one correct response.)     Buying a put     Buying a call.     Selling a put     Selling a call.

Finance THE MAXIMUM LOSS FOR A CALL OPTION BUYER IS: A. THE STRIKE PRICE LESS THE OPTION PREMIUM B. THE STRIKE PRICE C. THE OPTION PREMIUM D.THE STRIKE PRICE PLUS THE OPTION PREMIUM

Which of these will increase the value of a call option? I. An increase in the market value of the underlying asset II. An increase in the option's exercise (or strike) price III. A decrease in the market value of the underlying asset IV. An increase in the volatility of the underlying asset's returns A) I and Il only в) I only C) I and IV only D) Il and III only

Which of the following inputs is not required to price option using the Black‐Scholes model?  a) the asset price  b) the time to maturity  c)  the asset’s risk premium  d)  the risk‐free rate of interest

If the time to expiration falls and the put price rises, then what has happened to the put option’s implied volatility?