Given the following portfolio: Buy one call option on the stock XYZ with a strike price of $52.8 at a premium of $2 Sell two put options on the stock XYZ with a strike price of $57.9 at a premium of $1.5. Assume both option expire the same time. When the market price of the stock XYZ at expiration of all options is $54, the profit of the portfolio is $

Given the following portfolio: Buy one call option on the stock XYZ with a strike price of $52.8 at a premium of $2 Sell two put options on the stock XYZ with a strike price of $57.9 at a premium of $1.5. Assume both option expire the same time. When the market price of the stock XYZ at expiration of all options is $54, the profit of the portfolio is $

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 1P

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In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1) What assumptions underlie the OPM? (2) Write out the three equations that constitute the model. (3) According to the OPM, what is the value of a call option with the following characteristics? Stock price = 27.00 Strike price = 25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49
Given the following portfolio: Buy one call option on the stock XYZ with a strike price of $51.1 at a premium of $2. Sell two put options on the stock XYZ with a strike price of $56.5 at a premium of $1.5. Assume both option expire the same time. When the market price of the stock XYZ at expiration of all options is $54, the profit of the portfolio is $
A stock has a price of $73, which can later be $77 or $69 with equal probabilities. The options with exercise price $77 are valued at $1.53 for the call and $1.73 for the put. Calculate the gains/losses/returns for the stock. Calculate the gain/losses/returns for a covered call and protective put portfolio.
A non – dividend – paying stock with a current price of $52, the strike price is $50, the risk free interest rate is 12% pa, the volatility is 30% pa, and the time to maturity is 3 months? a) Calculate the price of a call option on this stock b) What is the price of a put option price on this stock? c) Is the put-call parity of these options hold?
A stock price is $30. An investor buys one call option contract on the stock with a strike price of $28 and sells a call option contract on the stock with a strike price of $27. The market prices of the options are $2 and $1.7, respectively. The options have the same maturity date. Describe the investor’s position and the possible gain/loss he will get (taking into account the initial investment). Make a graph of your gain/loss.
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Consider two portfolios A and B. At the expiration date, t, both portfolios have identical payoffs. Portfolio A consists of a put option and one share of stock. Portfolio B has a call option (with the same strike price and expiration date as the put option) and cash in the amount equal to the present value (PV) of the strike price discounted at the continuously compounded risk-free rate, which is Xe−rRFtXe−rRFt. At expiration, the stock price is Ptt, and the value of this cash will equal the strike price, X. As defined in the Black–Scholes model, let N(didi) stand for probability that a deviation less than didi will occur in a standard normal distribution and N(d₁) and N(d₂) represent areas under a standard normal distribution function. Complete the equation for the value of a put option.
Consider two portfolios A and B. At the expiration date, t, both portfolios have identical payoffs. Portfolio A consists of a put option and one share of stock. Portfolio B has a call option (with the same strike price and expiration date as the put option) and cash in the amount equal to the present value (PV) of the strike price discounted at the continuously compounded risk-free rate, which is Xe−rRFtXe−rRFt. At expiration, the stock price is Ptt, and the value of this cash will equal the strike price, X. As defined in the Black–Scholes model, let N(didi) stand for probability that a deviation less than didi will occur in a standard normal distribution and N(d₁) and N(d₂) represent areas under a standard normal distribution function. Complete the equation for the value of a put option. Put Option = – Now consider the stock of Grotesque Enterprises (GE) traded at the price P = $35 per share. A put option written on GE’s stock has an exercise price…
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