How to use call options and put options to create a synthetic short position in stock?

Q: Can an investor eliminate market risk from a common stock portfolio?

A: There are two types of Risk 1. Systematic  Risk:- These are risk pertains to Industry as a whole not…

Q: Why does the dilutive effect of stock options called the treasury stock method?

A: Treasury Stock Method: In this method, a company that receives exercised amount on the outstanding…

Q: How to figure out price targets for stocks by charting

A: One of the most typical ways to create a target price is to first identify a technical chart…

Q: Explain and implement the accounting for stock options.

A: Stock option compensation is an option related to compensation that is given to the key employees of…

Q: Which of the following events are likely to increase the market value of a calloption on a common…

A: The question is based on the concept of valuation of call option.  The value of call option is…

Q: What are Stock Options?

A: Stock options are the benefits given by a company management to its employees. These are options…

Q: Explain in detail with an example how the change of the variables (like Stock Price, Exercise Price,…

A: Black Scholes Merton is an option valuation model. In Black Scholes Merton formula, there are five…

Q: Explain with examples of how an option holder gains or losses from an increase in the volatility of…

A: Option buyer buys a right to exercise buy or sell, at the time of their benefit, at a pre-defined…

Q: What impact does each of the followingparameters have on the value of a call option?(5) Variability…

A: A call option provides certain rights to an individual regarding purchasing any stock at a strike…

Q: Describe Stock Option Plans.

A:

Q: If the risk of a stock increases, what is likely to happen to the price of call options on the…

A: Options give the right to the buyer of the option to exercise the option but not the obligation.

Q: On what do stock valuations rest?

A: The answer:

Q: When is a stock said to be in equilibrium? Why might a stock at any point in time not be in…

A: When buying or selling a stock, investors are indifferent. There is no inherent imbalance if a stock…

Q: Explain why common stock is itself like a call option. What plays the role of the exercise price and…

A: There are two types of options in the market: call options and put options.  Call options allow the…

Q: What is market auction preferred stock?

A: Preferred stock: Preferred stock is a hybrid security that mixes characteristics of both common…

Q: Can an investor eliminate market risk from a portfolio of common stocks?

A: Beta is a systemic risk of this kind. The risk integral to the business or segment as a whole is…

Q: Is the equation used to value preferred stock more like the oneused to evaluate perpetual bonds or…

A: Answer: The equation used to value preferred stock is more likely to the one used to evaluate…

Q: Which of the following best describe a speculative stock? high risk, low volatility, start-ups high…

A: Speculative stocks are those where the price of stock changes too frequently and are quite volatile.

Q: What are the disadvatages of selling call options LEAP ,which allows the seller to sell shares at a…

A: Options are derivative contracts. Financial options gives the right, but not obligation, to buy or…

Q: How does the price of a call option respond to the following changes, other things equal? Does the…

A: Price of an option depends on following factors: Strike price or exercise price, Time to maturity,…

Q: Which of the following could be a delta-neutral portfolio? (choose all that apply) A long position…

A: A portfolio is a set of various types of assets which may include different types of asset class…

Q: Your discussion mentions risk premiums. Can you give an example of a stock that offers a risk…

A: Solution- Risk Premiums- The risk premium is that the rate of come on an investment over and higher…

Q: What effect does Stock Price have on call option price? What effect does Time expiration have on…

A: Effect of stock price on call option price: As the price of the stock increases the call option…

Q: What effect does Standard Deviation of Stock returns have on call option price?

A: Standard Deviation of Stock Returns:The standard deviation of stock returns represent how much…

Q: pect the stock to have a retu eturn according to the CAP the stock? (Select the bes

A: The expected return can be calculated as follows : Calculations for above :

Q: Describe the effect of a change in each of the following factorson the value of a call option: (1)…

A: An agreement where the holder has a right to purchase or sell the shares at a specific price at a…

Q: Why do call options with exercise prices greater than the price of the underlying stock sell for…

A: To understand this statement, we consider a practical example Let stock have current price…

Q: What effect does Stock Price have on call option price?

A: Call options are contract which gives the buyer the right but not the obligation to buy the…

Q: Briefly describe the use of stock options in acompensation plan. What are some potential problems…

A: A stock option is basically a contract between a buyer and a seller, wherein the buyer has the right…

Q: How is the intrinsic value of the call option impacted as the stock price changes? How is the time…

A: 1) Intrinsic value of a call option for a trader is the current value of the option. It is the…

Q: What is meant by the delta of a stock option?

A: It is certain for call options and negative for put options. That is on the grounds that an increase…

Q: The fair value of stock options can be considered to comprise two main components. What are they?

A: Definition:   Stock options: Stock options are the stock-based compensation plans provided in the…

Q: Describe how a typical stock option plan works. What are someproblems with a typical stock option…

A: The stock option plan is the plan for the employees to buy the company’s shares in which they are…

Q: hat is the relationship between the expected return of a stock and its fair expected return? When is…

A: Step 1   The anticipated return is the profit or loss that an investor expects from a known…

Q: What are the basics on purchasing stock options ?

A: Stock options are better way of hedging position in the market.