What would be a simple options strategy to exploit your conviction about the stock price's future movements? Group of answer choices Long Straddle Short Straddle Bull Spread Bear Spread
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What would be a simple options strategy to exploit your conviction about the stock price's future movements? Group of answer choices Long Straddle Short Straddle Bull Spread Bear Spread
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- Black-Scholes Model Assume that you have been given the following information on Purcell Industries call options: According to the Black-Scholes option pricing model, what is the option’s value?Select all that are true with respect to the Black Scholes Option Pricing Model (BSOPM) Group of answer choices When using BSOPM to value a stock option, the BSOPM assumes that stock prices follow a normal distribution. When using BSOPM to value a stock option, the BSOPM assumes that stock returns follow a normal distribution. Half of the observations in a normal distribution are above the mean and half are below the mean. Fisher Black and Myron Scholes were awarded the Nobel Prize in 1997 for their work in Option Pricing.Which of the following techniques is used to value stock options? a. Black-Scholes method b. Zero-coupon method c. Weighted-average method d. Expected earnings method
- Why do call options with exercise prices greater than the price of the underlying stock sell for positive prices?Suppose that put options on a stock with strike prices $66 and $75 cost $3 and $5, respectively. How can the options be used to create (a) a bull spread and (b) a bear spread? For what range of future stock prices will the bear spread strategy be profitable. Is the profit for the bear spread strategy limited? If so, how much and at what price range? At what price range will you exercise the long position from the bear spread strategy? At what range of future stock prices will the bear spread strategy lead to a loss? What is the maximum loss that you can incur from bear spread strategy and at what price range?Which is the most risky transaction to undertake in the stock index option markets if the stock market is expected to increase substantially after the transaction is completed? Choose the correct.a. Write a call option.b. Write a put option.c. Buy a call option.d. Buy a put option.
- Explain in detail with an example how the change of the variables (like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration) of Black-Scholes-Merton Formula affect the price of the option.Which of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a futureSelect all that are true with respect to the Black Scholes Option Pricing Model (OPM) in practice): Group of answer choices BSOPM assumes that the volatility of the underlying stock returns is constant over time. BSOPM assumes that the underlying stock can be traded continuously. BSOPM assumes that there are no transaction costs. There is only one input to the BSOPM that is not observable at the time you are valuing a stock option, and that input is volatility. Implied volatility is estimated by calculating the daily volatility of the underlying stock’s return that occurred over the prior six months.
- Based on Torelli’s scenarios, what is the mean return of GMS stock? What is the standard deviation of the return of GMS stock? 2. After a cursory examination of the put option prices, Torelli suspects that a good strategy is to buy one put option A for each share of GMS stock purchased. What are the mean and standard deviation of return for this strategy?What impact does each of the followingparameters have on the value of a call option?(1) Current stock priceDescribe what a stock option is. what does it means to buy a "put" or a "call" and what you are expecting the stock to do for each (ie go up or down in price). Discuss when you would make money on a put option and when you would make money on a call option.
