What is the delta hedge (number of options) for calloptions with a strike of $71.85 required to hedge a singleshared that is presently worth $52.9/share and can attain$86.73/share with 40% likelihood or $46.91/share with60% likelihood?[If your answer is a fraction, please convert it to a decimalfor submission]Answer:

Delta is the ratio of the change in the price of an option to the change in the price of the…

Answered: What is the delta hedge (number of…

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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Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $115 (down state). Required: What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $115 (down state)? What do you conclude about the hedge ratio as the option becomes progressively more in the money?
Reconsider the determination of the hedge ratio in the two-state model, where we showed that one-third share of stock would hedge one option. What would be the hedge ratio for the following exercise prices: (a) 120, (b) 110, (c) 100, (d) 90? (e) What do you conclude about the hedge ratio as the option becomes progressively more in the money?
parts c, d, e Suppose an investor is considering a multi option strategy on a stock with a currentprice of $100. The following strategy is called a strangle. The investor purchases a call optionwith a strike price of $110 for a premium of $5 and purchases a put option with a strike priceof $90 for a premium of $3.a) Draw a payout diagram for the strangle option strategy at expiration.b) Determine the breakeven points for the strangle option strategy.c) Suppose the stock price at expiration is $120. What is the profit for the strangle optionstrategy?d) Suppose the stock price at expiration is $85. What is the profit for the strangle optionstrategy?e) What is the investor speculating on with her option strategy?
A three-step binomial tree with terminal stock prices being 1.103, 0.875, 0.695, and 0.552. At time 0, if you have the insider information that at the maturity the stock price will be 0.875. Then, will the option premium at time 0 still be same as if you don't have this information, please choose from the answers below? a) Option premium is irrelevant to the private information (about the underlying) that option holder possesses. b) As in that case, the risk neutral probability of the impossible sample paths become zero.
Consider a bearish option strategy of buying one $50 strike put for $7, selling two $42 strike puts for $4 each, and buying one $37 put for $2. All options have the same maturity. Colculste the final profic per share of the strategy if the underlying is trading 2t $33 at expiration. 1,51 per share 2.52 per share 3.53 per share 4,54 pershare,
Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400. Required: How many dollars’ worth of the market-index portfolio should it purchase? What is the delta of a put option? Complete the following:
Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400. Required: How many dollars’ worth of the market-index portfolio should it purchase? What is the delta of a put option? Complete the following: Do number 1 and 3
We will derive a two-state call option value in this problem. Data: S0 = $190; X = $200; 1 + r = 1.10. The two possibilities for ST are $220 and $120. The portfolio consists of 1 share of stock and 5 calls short. Required: a. The range of S is $100 while that of C is $20 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.) b. Calculate the value of a call option on the stock with an exercise price of $200. (Do not use continuous compounding to calculate the present value of X in this example, because the interest rate is quoted as an effective per-period rate.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider a bearish option strategy of buying one $50 strike put for $7, selling two $42 strike puts for $4 each, and buying one $37 put for $2. All options have the same maturity. Calculate the final profit per share of the strategy if the underlying is trading at $33 at expiration. 1. $1 per share 2. $2 per share 3. $3 per share 4. $4 per share
We will derive a two-state put option value in this problem. Data: S0 = $180; X = $190; 1 + r = 1.10. The two possibilities for ST are $210 and $110.a. The range of S is $100 while that of P is $80 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) (The answer for this one is -.80) :)b. Form a portfolio of four shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) c. What is the present value of the portfolio? (Round your answer to 2 decimal places.) d. Given that the stock currently is selling at $180, calculate the put value. (Do not round intermediate calculations and round your answer to 2 decimal places.)
A stock priced at $50 has two possible outcomes, either increases to $60 or decreases to $42. If the stock goes up, the payoff of the stock's call option = S5. But, if the stock price declines to $42, the calls will expire worthless. Given these two possible outcomes, what is the Hedge Ratio of the Call option? Round your answer to two decimals. The listed correct answer was 0.28. I could not find a way to get this.
For each of the 100-share options shown in the following table below; use the underlying stock price at expiration and other information to determine the amount of profit or loss an investor would have had. Option Type of option Cost of option Strike price per share Underlying stock price per share at expiration A Call $214 $48 $53 B Call $372 $45 $48 C Put $537 $63 $54 D Put $297 $32 $36 E Call $495 $27 $24 The profit (loss) experienced on option A is $ ? (Round to the nearest dollar. Enter a negative number for loss.)

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