INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 20, Problem 5CP
a.
Summary Introduction
To select: Total profit of share at expiration cost.
Introduction :
Net Profit: The net profit depends on the value of call price and exercise price of thebonds.
b.
Summary Introduction
To select: Maximum loss on put and maximum gain on call.
Introduction :
Maximum loss: Maximum loss is a difference of strike price to each share price while maximum gain is equal to each share price.
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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?
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,
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
Chapter 20 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
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