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Option Pricing You notice that shares of stock in the Patel Corporation are going for $50 per
share. Call options with an exercise price of $35 per share are selling for $10. What’s wrong here?
Describe how you can take advantage of this mispricing if the option expires today
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- Option Pricing You have decided that you have $12,000 to invest in the stock market and that Apple stock would be the best investment for you. It is currently trading at $120.00 per share but has been very volatile this past year. Instead of buying it outright, you have decided to buy a “call” option on the Apple stock. The price for a call option on Apple stock is $3.50 per share, and the strike price (the price that you can purchase it at) is $126.00 per share. The option will be valid for six months. You do not have to exercise the option, but if you do not, you lose the price of your call option ($3.50). 1. At what price will Apple stock have to rise to for you to decide to exercise your call option (ignoring taxes and brokerage commissions on the trade)? 2. At what price will it have to rise to for you to break even on the decision to exercise the option? 3. If Apple stock declines over the next six months and you decide not to exercise your call option, how much money will…You buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract.a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value?c. What is your net profit if IBM’s stock price decreases to $130?d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $210 at year-end. XYZ currently sells for $210. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 4%. Unfortunately, no put options are traded on XYZ Company. Required: a. How much would it cost to purchase if the desired put option were traded? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What would be the cost of the protective put portfolio?
- You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $100 at year-end. XYZ currently sells for $100. Over the next year the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Co.a. Suppose the desired put option were traded. How much would it cost to purchase?b. What would have been the cost of the protective put portfolio?c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = 100? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.Stock Z is currently trading at $27 per share. Its three-month call option has a strike price of $33 per share. Z’s three-month put option has a strike price of $25 per share. Which of the following is CORRECT? Investor should not exercise the call option because it is out of the money Investor should exercise the put option because it is in the money Investor should exercise the call option because it is in the money Investor should let both options expire because they are at the moneyMr. Eisner sold 10 Microsoft put options and bought 5 Microsoft call options. Both options have the same exercise price of $80 and the same expiration date. Draw the payoff diagram with respect to the price of Microsoft stock at expiration. The solution provided for this question is attched. But I dont understand the payoff for sold put options, if the stock price is less than the strike price then shouldn't the seller would be at loss? why is it given (St-80) and if the stock price is greater than the strike price then shouldnt the seller gain profit? of the premium then why is it given 0? Please explain in simple terms, steo by step.
- You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $105 at year-end. XYZ currently sells for $105. Over the next year, the stock price will increase by 9% or decrease by 9%. The T-bill rate is 7%. Unfortunately, no put options are traded on XYZ Company. Required: Suppose the desired put option were traded. How much would it cost to purchase? What would have been the cost of the protective put portfolio? What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = 105? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $240 at year-end. XYZ currently sells for $240. Over the next year, the stock price will either increase by 7% or decrease by 7%. The T-bill rate is 3%. Unfortunately, no put options are traded on XYZ Company. Required: a. How much would it cost to purchase if the desired put option were traded? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $100 at year-end. XYZ currently sells for $100. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Co. (LO 16-5) a. Suppose the desired put option were traded. How much would it cost to purchase? b. What would have been the cost of the protective put portfolio? c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X 5 $100? Show that the payoff to this portfolio and the cost of establishing the portfolio matches that of the desired protective put.
- 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?You have written a call option on Walmart common stock. The option has an exercise price of $81, and Walmart’s stock currently trades at $79. The option premium is $1.60 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $77 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price increases to $87 at expiration of the option and the option holder exercises the option?he initial margin requirement on a stock purchase is 50% and the maintenance margin is 30%. You fully use the margin allowed to purchase 100 shares of XYZ at $25. If the price drop to the margin-call point, your broker will sell just enough of your shares to restore the initial margin requirement. How many shares will your broker sell Ignore interest on the loan.) Multiple Choice 334 400 462 667