Max has decided to purchase 4 Alaska Air Group (ALK) call options with a strike price of $60 for a premium of $5.50. Simultaneously, Max writes (sells) 4 ALK call options with a strike price of $75 for a premium of $1.35. (a) What is the name of the strategy that max has employed. (b) What would be Max's profit if the price of ALK stock is at $43? [ (c) What would be Max's profit if the price of ALK stock is at $88?'

Max has decided to purchase 4 Alaska Air Group (ALK) call options with a strike price of $60 for a premium of $5.50. Simultaneously, Max writes (sells) 4 ALK call options with a strike price of $75 for a premium of $1.35. (a) What is the name of the strategy that max has employed. (b) What would be Max's profit if the price of ALK stock is at $43? [ (c) What would be Max's profit if the price of ALK stock is at $88?'

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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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?
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Topic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places 1. ABC Milling Corporation acquired three call options for wheat. The option has 10 tons of wheat as the underlying asset and P12,100 per ton as strike price. If on the exercise date, the market value of a ton of wheat is P12,250, what is the total value of the option contracts acquired by ABC?
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An investor has purchased United States dollar call options, with an exercise price of A$1.15 anda premium of A$0.03 per unit.(a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the investor if the spot rate at the time the investor considers exercising the options is : (1) A$1.10 (2) A$1.17 (3) A$1.23.(c) What is the maximum loss for the investor?(d) Explain why the investor could have an unlimited profit if the options are exercised.(e) Explain in general the similarities of and differences between a currency call option and a currency put option.
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