2. An investor sells a European call on a share of $5. The stock price is $45 and the strike price is $52. Fill the table and answer 国 Stock price (ST) in the $35 $40 $45 $47 $50 $52 $55 $60 market Option value (Pay off) Premium Profit a) Under what circumstances does the investor make a profit? b) Under what circumstances will the option be exercised? c) What is the maximum loss an investor can incur?

2. An investor sells a European call on a share of $5. The stock price is $45 and the strike price is $52. Fill the table and answer 国 Stock price (ST) in the $35 $40 $45 $47 $50 $52 $55 $60 market Option value (Pay off) Premium Profit a) Under what circumstances does the investor make a profit? b) Under what circumstances will the option be exercised? c) What is the maximum loss an investor can incur?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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2. An investor buys a European put on a share for Rs. 3. The stock price is Rs. 42 and the Strike price is Rs. 40. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the investor's profit with the stock price at the maturity of the option.
An investor sells a European Put on a share for $4. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the investor's profit with the stock price at the maturity of the option.
An investor sells a European call on a share for $4. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised?
Suppose that a European call option to buy a share for $ 90.00 costs a . Under what circumstances will the SELLER of the option make a profit ? \$4.00 and is held until maturity . ( DRAW the GRAPH to show ALL answers ) b . when will the option be exercised ( at what price , show on graph ) ? c . What is the Maximum profit for SELLER and at what stock price ? d . What is the Maximum loss for SELLER and at what stock price ? e . What will be profit / loss for SELLER if St is 150 ?
Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held untilmaturity. Under what circumstances will the holder of the option make a profit? Underwhat circumstances will the option be exercised? Draw a diagram illustrating how the profitfrom a long position in the option depends on the stock price at maturity of the option. Suppose that a European put option to sell a share for $60 costs $8 and is held untilmaturity. Under what circumstances will the seller of the option (the party with the shortposition) make a profit? Under what circumstances will the option be exercised? Draw adiagram illustrating how the profit from a short position in the option depends on thestock price at maturity of the option.
A trader buys a European put on a share for K3. The stock price is K42 and the strike price is K40. State the circumstances under which the trader will make a profit. State the circumstances under which the option will be exercised. Draw a diagram in support of your answers above, showing the variation of the trader’s profit with the stock price at the maturity of the option
Suppose that a European put option to sell a share for $20.00 costs $1.00. Assume the price of the underderlying stock at expiration is S on the expiration date. Under what circumstances should the holder excercise the option. With what price the holder will make profit
Assume that Sara gets into a short European put option to sell one share of stock Y for $66 that costs $7 and is held until maturity. Under what circumstances will Sara, the seller of the option (the party with the short position), make a profit? Under what circumstances will the option be exercised (from long position perspective)? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.
Assume that the current price of a stock is S0 = 100. An investor holds long one European put option with a strike price of K = 100 and short one European call option with strike K = 105. Both options mature at the same time T. Assume that the stock price at maturity is ST = 102. What is the payoff to the investor? Select one: a. 2 b. 1 c. 0 d. -1 e. -2 f. None of the above
MetaAn investor buys a put option contract for S of IBM Inc. stock, with a contract size of ton shares. The stock price is currently $35, and the exercise price is $10. What are the investor's expectations, and under what conditions does the investor make a profit? (1) Is this put option in-the-money? ii) Under what circumstances will the option be exercised? (iv) If at the expiration of the option, the stock price is $ so calculate the profit/loss of the investment and explain what the transactions are? Shall the investor exercise this option?
An investor buys a European call option at a price of 7.6 yuan. The stock price is 52 yuan and the strike price is 55 yuan. Under what circumstances will the investor make a profit ? Under what circumstances will the option be executed ? Draw a diagram of the relationship between investor profitability and stock price at maturity.
A European call on OPSY stock with a strike price of $22.50 is worth $1.75. Let the present value of the strike price be $22.25. A European put on the stock with identical terms is worth the same. If the price of OPSY stock is $22, the arbitrage profit that you can create today by trading the stock and other related securities is: (Answer in dollars without $)

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