Assume you are an option buyer. Strike price is $44 and option premium is $3. You will pay $44 when you exercise the optic Select one: O True O False
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- For a given option portfolio, you are long vega (value increases as volatility goes up), and short theta (as time passes your options portfolio loses money). Are you net long or short options? Net long, because as volatility goes up and it increases in value and as time passes you lose value. Net short, because as volatility goes up and it decreases in value and as time passes you increase value. not consistent you are long one and short the other, so can't tell completely independent derivatives, its apples and oranges and no reflection on your portfolioAn executive at a publishing house has just been given two stock options as a bonus. Each option gives the executive the right (but not the obligation) to purchase one share of the publishing company's stock for $50, as long as he does it before the closing of the stock market tomorrow afternoon. When the executive exercises either option (recall, he has two), he must immediately sell the stock bought from the company at the market prize in effect at the time. An option can only be exercised once. The stock's price today is $55. The executive knows this price today before deciding what to do today. Hence, if he exercises either option today he is guaranteed a profit of $5 per option exercised. The stock price tomorrow will either be $45 or $65 with equal probability. The executive will know the price tomorrow before deciding what to do that day. This means that if he waits until tomorrow and the stock price rises to $65, he can exercise any remaining options for a profit of $15 per…If you are an option trader and the way you make money is by trading volatility, how often do you need to delta hedge an option? A. Theoretically constantly as the underlying forward moves in the market. Practically you hedge as often as practicable. This is the art in trading. B. Just once at the beginning and then you leave it alone C. it depends on what asset class you are trading D. If you're a volatility trader you don't delta hedge
- Assume Person A is offered the following game: If they want to participate in the game, theywill need to pay £5. If they participate, they can choose between Option A and Option B.Option A consists of spinning a roulette wheel with 37 different numbers (18 red, 18 black,and 1 green). If the outcome is red, the participant receives £10 and £0 otherwise. Option B isa fair coin flip that yields £5 when heads comes up and £10 when tails comes up.(a) What is the expected value of Option A?(ii) What is the expected value of Option B?(iii) What is the expected value of participating in the game and choosingOption A?(iv) What is the expected value of participating in the game and choosingOption B?(v) How much would the game need to cost to make it a fair game when youchoose Option A?(vi) How much would the game need to cost to make it a fair game when youchoose Option B?(b) Person A chooses to participate in the above described game. Which of thefollowing options can be true regarding…Answer it correctly. I will rate. option c is wrong.Trader’s always earn a profit when an option expires “in-the-money.” true or falsa An option with a high strike price will usually expire in the money. true or false For every call option bought, there is a call option sold. true or false
- In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act creates the greatest real option value? How exactly does that alternative save money? Why? Explain why installing a scrubber burns this option.Give Fistly Explanation and than generate answer in this formate Option a: This option is correct or incorrect because Option b: This option is correct or incorrect because Option c: This option is correct or incorrect because Option d: This option is correct or incorrect becauseSuppose Real Option Inc. has a product that generates the following cash flow. At t=1, the demand can be high or low. There is a probability of 0.6 that demand is high. If demand is high (low) the cash flow is CFH=400 (CFL=200). At t=2, the demand can also be high or low. If demand was high at t=1, then a high demand at t=2 arises with probability 0.7. If demand was low at t=1, then a high demand at t=2 arises with probability 0.2. If demand is high (low) at t=2 then CFH=400 (CFL=200). The interest rate for this project is 20%. (a) Draw the event and decision tree. (b) What is the market price (expected value) of Real Option Inc. at t=0? Now suppose Real Option Inc. can rent a platform to run a marketing campaign. For this purpose Real Option Inc. must sign a two year contract with the platform provider. The costs for using the platform are 180 per period. Marketing itself does not cost anything and has the following effect. In the high demand state, marketing doubles the demand. In…
- You are in the market for a new refrigerator for your company's lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $700 and will save you $45 at the end of each of the next five years in electricity costs. The standard model has features similar to the energy-efficient model but provides no future saving in electricity costs. It is priced at only $500. Assuming your opportunity cost of funds is 6 percent, which refrigerator should you purchase?Answer only if you are 100% sure. I need correct answer with short explanation. I will rate accordingly. option B is wrong.Assuming I have an option clearinghouse account through my broker, my strategy to make money through the option trading is all about doing offset at the right time, and getting profit from the difference between the option price paid and the option price received. Briefly Explain( using numbers of your choice if necessary)?
