If you were to write a call option on XYZ (with a strike price of $100) AND also write a put option on XYZ (with a strike price of $100), each within six months maturity, what type of bet are you making? 1.XYZ will go up 2.XYZ will go down 3. Volatility of XYZ will increase 4. Volatility of XYZ will decrease

If you were to write a call option on XYZ (with a strike price of $100) AND also write a put option on XYZ (with a strike price of $100), each within six months maturity, what type of bet are you making? 1.XYZ will go up 2.XYZ will go down 3. Volatility of XYZ will increase 4. Volatility of XYZ will decrease

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 3MC: Consider Triple Play’s call option with a $25 strike price. The following table contains historical...

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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
Give typing answer with explanation and conclusion A call option has a strike price of $11, and a time to expiration of 0.8 in years. If the stock is trading for $20, N(d1) = 0.5, N(d2) = 0.12, and the risk free rate is 5.40%, what is the value of the call option?
Consider a put option written on an underlying security that has a current value of $100 and has a volatility of 25% (i.e. .25). The put has a strike price of $100 and expires in 1 year. The risk-free rate is 3% (.03). If the time to expiration is changed from 1 to 2 to 3 years, what happens to the value of vega (the change in the put value given a percentage point change in the volatility – say from 25% to 26%)? (Note: vega is defined in note N16 on page 8; see ). What is the comparison of the change in vega (given a change from 1 to 2 to 3 years to expiration) if the strike price is $105 (relative to if the strike is $100)?
In an efficient market, a one-year call option on stock S with K = $25 is traded at$7.06, the current stock price S0 = $28.5, the expected market return is 7.5% and the T-Bill yield is 4%. You are about to purchase a one-year put option on the same stock with K = $26, someone offered it to you at a price of $3.6. Should you buy it?
Consider a put option whose underlying asset is a stock index with 6 months to expiration and a strike price of $1000. Suppose the risk-free interest rate for the six months is 2% and that the option’s premium is $74.20. (a) Find the future premium value in six months. (b) What is the buyer’s profit is the index spot price is $1100? (c) What is the buyer’s profit is the index spot price is $900 Only typed answer
In a binomial model, a call option and a put option are both written on the same stock. The exercise price of the call option is 30 and the exercise price of the put option is 40. The call option’s payoffs are 0 and 5 and the put option’s payoffs are 20 and 5. The price of the call is 2.25 and the price of the put is 12.25. a. What is the riskless interest rate? Assume that the basic period is one year. b. What is the price of the stock today?
Assume that K=61, St =65, t = 0.25 (i.e. time to expiry is 3 months), and the risk-free rate is 0.04. The current price of the put option is p = 4. If the price of the call option is 7.17, describe the arbitrage that would be possible, and calculate the profit that would result.
A call option with an exercise price of $10 and 3 months to maturity has a price offer of $0.75. The stock price is $10.90 and the risk-free rate is 5%. Is this a boundary violation? If so, calculate the arbitrage profit available.
Let us consider a stock (called "stock A") whose price today is €12. Supposethat in six months' time the price can only go up to €16 or down to €10.Suppose the interest rate is 10% per annum continuously compounded.Let us consider a call option (called "call option B") written on this stock,with maturity date of 6 months and strike price €13.(a) Determine the fair price c for this call option (show all the steps of yourwork).Assume that the seller of call options B starts with zero capital, sells 100call options (each at the fair price c obtained in the previous question), andborrows money to buy A shares of the stock A.(b) How many shares should he buy in order to run no risk at the end of thesix months period?
Suppose an investor shorts a straddle (a call option + a put option with the same strike price) with the following parameter values: S = 200, K = 250, σ = 0.30, RF = 0.05, q = 0, T = 5 years, and the interest rate, volatility, and the dividend yield are all given as annual values. Assuming that average daily returns are approximately zero, what is the 5% daily Delta-Gamma VaR of the short straddle position in dollars? Use 3 decimal places for your answer. (If you need to round the Gamma in an intermediate step, please use at least *6 digits*.)
). Suppose the call option of Tesla company has an exercise price of $200 and expires in 90 days. Assume the current price of Tesla stock is $240, with a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year. First, using the Black-Scholes formula, compute the price of the call. And then use put-call parity to compute the price of the put with the same strike and expiration date. Based on put-call parity, what should be the put option price? a. $ 2.65 b. $ 1.78 c. $ 3.69 d. $ 4.22 e. None of the above
Suppose the call option of Tesla company has an exercise price of $200 and expires in 90 days. Assume the current price of Tesla stock is $240, with a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year. First, using the Black-Scholes formula, compute the price of the call. And then use put-call parity to compute the price of the put with the same strike and expiration date. Based on put-call parity, what should be the put option price? $ 2.65 $ 1.78 $ 3.69 $ 4.22 None of the above