Pat and Chris are both short 200 six month call options with a strike price of 75 on Noble Energy. Pat’s position has been delta hedged while Chris’ has been delta-gamma hedged. (Chris has access to a six month put option at 72.) The price of Noble is 77, the stock has an annual standard deviation of 28 percent, and the interest rate is 3 percent. A: How much money will Pat and Chris make or lose if the price of Noble jumps to 91? B: How much money will Pat and Chris make if the price of Noble falls to 64?

Pat and Chris are both short 200 six month call options with a strike price of 75 on Noble Energy. Pat’s position has been delta hedged while Chris’ has been delta-gamma hedged. (Chris has access to a six month put option at 72.) The price of Noble is 77, the stock has an annual standard deviation of 28 percent, and the interest rate is 3 percent. A: How much money will Pat and Chris make or lose if the price of Noble jumps to 91? B: How much money will Pat and Chris make if the price of Noble falls to 64?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Rachel is considering an investment in Yonan Communications, whose stockcurrently sells for $65. A put option on Yonan’s stock, with an exercise price of $60, has amarket value of $2.90. Meanwhile, a call option on the stock with the same exercise priceand time until expiration has a market value of $9.13. The market believes that at the expirationof the options, the stock price will be $55 or $75 with equal probability.a. What is the premium associated with the put option? The call option?b. If Yonan’s stock price increases to $75, what would be the return to an investor whobought a share of the stock? If the investor bought a call option on the stock? If theinvestor bought a put option on the stock?c. If Yonan’s stock price decreases to $55, what would be the return to an investor whobought a share of the stock? If the investor bought a call option on the stock? If theinvestor bought a put option on the stock?d. If Rachel buys 0.5 share of Yonan Communications and sells one call…
Neha wrote five call option contracts with a strike price of $33.70 and an option price of $.60 per share. What is the net profit on this investment if the price of the underlying stock is $34.15 per share on the option expiration date? Ignore trading costs and taxes.
The stock price of BAC is currently $120 and a put option with strike price of $120 is $5. A trader goes long 300 shares of BAC stock and long 3 contracts of the put options. a. What is the maximum potential loss for the trader ? b. When the stock price is $140, what is the trader’s net profit
Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $100 and expires in 90 days. The current price of Up stock is $120, and the stock has a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year. Using the Black-Scholes formula, compute the price of the call.
Suppose you own a put option that gives you the right to sell 300 shares of Brad’s Drink to another investor for $28 per share anytime during the next six months. Brad’s Drink stock currently sells for $29 per share. Should you exercise the option if the stock's price increases to $33? What would be your gain (loss) if you bought the stock at $33 and then exercised the option?
An investor purchases a call option at a premium of $1.25, with an exercise price of $7.50 within three months.The holder of the option will: A) B) C) D) * A. be in-the-money if the market price of the shares reaches $6.25 B. only exercise the option if the current market price reaches or exceeds $8.75 C. exercise the option at any price above $7.50. D. break even at a market price of $7.50, and will exercise the option
Dumo is a trader at ZNF Equity traders and has just identified a stock, UFSI Limited, which is currently trading at R25 per share. Dumo decides to take a long position in at-the money put option and simultaneously buys one share of UFSI stock. the put option expires in 3 months time and costs R2.50 per share. Assume a contract consists of one put option. Tabulate the Profit to the strategy at expiration for the following: I) Exercise price R30; stock 20 and Exercise price R30, stock price R35
Dumo is a trader at ZNF Equity and has just identified a stock. UFSI Limited which is currently trading at R25 per share. Dumo decides to take a long position in at-the money put option and simultaneously buys one of the UFSI stock. The put option expires in 3 months' time and costs R2.5 per share. Assume a contract consists of one put option. Identify the strategy employed by Dumo above. Tabulate the Progut to the strategy at expiration for the following, Exercise price R30 ; Stock price 20. Exercise price R30; Stock price 35.
Mary buys 23 call options with a strike price of $85 and a premium of $3 per contract. At what price will she exercise the options to earn a profit? At $85 per share or less At $88 per share or less At $88 per share or higher At $85 per share or higher
Dumo is a trader at ZNF Equity traders and has just identified a stock, UFSI Limited, which is currently trading at R25 per share. Dumo decides to take a long position in at-the money put option and simultaneously buys one share of UFSI stock. The put option expires in 3 months’ time and costs R2.5 per share. Assume a contract consists of one put option. Required: Tabulate the Profit to the strategy at expiration for the following Exercise price R30; Stock price 20. Exercise price R30; Stock price 35. ST =20 ST =35 Stock Put (Pt) Premium Total profit
Suppose you decided to enter into a futures contract involving a stock that sells for Php888.75 per share and you purchased 1,000 shares of this stock. The initial margin requirement is 25% of the price and the maintenance margin requirement per contract is 20% of the stock price. Assume that you went 5 long contracts. (Show complete solution for each item.) A. How much would you have to pay in initial margin? B. How much is the maintenance margin requirement value? C. What is the price of the stock when maintenance margin will be hit? Interpret the result.
The CEO of SubShack was granted 100,000 options. The stock price at the time of the granting of the options was $35 and the options have an exercise price of $40. The risk free rate was 3% and the options expire in 5 years. The variance on the stock is .06, or 6.0% What is the value of the options contract (use Black Scholes formula and show all formulas and steps for d1, d2, N(d1), N(d2) and the continuous discount rate)? If he had negotiated a larger salary and only 10,000 options, what would be the value of the options contract?