On November 1, 2011,Target stock closed at 50. You forecast that six months from that date Target stock price will be either $60 or $40. If the stock price rises to $60, then on November 1, 2012 the price will be either $70 or $50. If the stock price falls to $40, then on November 1, 2012 the price will be either $50 or $30. Using the BOPM, determine the value of two European put options on Target with the same exercise price of $55 that expires on May 2, 2012 and November 1, 2012,

Consider a particular stock with call and put options. The date is January 12, and the price of the stock is P185. The table below shows the closing prices of four options, two of which expire in February and May and have exercise prices of 175 and 205, respectively. The February options will expire on February 16th, while the May options will expire on October 20th. These specific selections are of the American style.   Exercise Price February Calls May Calls February Puts May Puts 175 25.00 33.50 18.00 26.75 205 18.20 20.22 25.25 32.18   Consider the February call. Explain (with supporting calculations) that the option holder has no reason the option right now. When is the purchased justified? Explain (with supporting calculations) that, given February call at an exercise price is less likely also to be exercised. Suppose that the option buyer has an alternative to purchase May call instead of February call. Explain why May options are more…

On July 1, an investor holds 50,000 shares of a certain stock. The market price is $30 per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September Mini S&P 500 futures contract. The index is currently 1,500 and one contract is for delivery of $50 times the index. The beta of the stock is 1.3. What strategy should the investor follow to reduce beta to 0?

The current price of XYZ stock is $50, and two-month European call options with a strike price of $51 currently sell for $10. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,000.a. How much is the profit (loss) for strategy A if the stock closes at $65?(sample answer: $100.25 or -$100.25) b. How much is the profit (loss) for strategy B if the stock closes at $65? (sample answer: $100.25 or -$100.25) c.How high does the stock price have to rise for strategy B to be more profitable (break-even point)? (sample answer: $100.25)