Strike price

have the strike price set as the market price on the day the grant is made.   Grantees can later sell these stock shares at a higher price and make a profit.  Over the last several years, several companies have been accused of issuing stock options to their top executives at the lowest stock price of the year.   This could lead to very large profits.  Such manipulation of the strike price is unethical and in some cases may be illegal.  In some companies, granting options at the lowest price happened

FDRM Project On 9/17/2014 Estimation of NIFTY Spot Price Using Put-Call Parity Under the guidance of Professor Rajiv Srivastava Submitted by: Abhay Sharma (1A) Ayush Gupta (9C) Sachin Gupta (38A) Shikhar Mathur (45A) Table of Contents 1. 2. 3. 4. 5. 6. Executive Summary………….………………………..……………………………….………………..2 Introduction ……………………..………………………………………………………………….……..3 1.1 Why Derivative Markets…………………………….………………………………………………….……..3 1.2 Derivative Markets…………………………………………………………………………………………

Return = Net Premium – Commissions Paid, Where Price of Underlying Security > Strike Price of the Long Call Maximum loss = Difference between strike prices of calls - Net Premium or Credit Received + Commissions paid Now we notice that the maximum gain that we can attain using this bear call strategy is practically the credit received upon entering the trade. Therefore, to have maximum profit, the stock price needs to close below the lower strike price of the two calls and sold at expiration date

between the price of the American and the equivalent European options with the same strike and the same time to maturity. 2. Use Solver to find the implied volatilities for all put options with strike prices between $70 and $100 that are divisible by 5 and

 (Points : 1)         Market value         Open Interest         Trading volume         Notional value  | 2. Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bid-ask prices are $32.00 - $32.50. When the position is closed the bid-ask prices are $32.50 - $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid-ask loss or

is currently worth $10 million and has a beta of 1.0. An index is currently standing at 800. Explain how a put option with a strike price of 700 can be used to provide portfolio insurance. Index goes down to 700 10*(800/700)= 8.75 million Buying put options= 10,000,000/800= 12,500 If you buy the options at 800, the value will be 12,500 times the index with a strike price of 700 therefore providing protection against a drop in the value of the portfolio below $8.75 million. Each contract is on

1. _____ is the rate of change of delta with respect to the price of the underlying asset. a. Gamma b. Theta c. Rho 2. The short term risk-free rate usually used by derivatives traders is b. The LIBOR rate 3. Duration of a ten-year 6% coupon bond with a face value of $100 is a. Less than 10 years. 4. Which of the following are always positively related to the price of a European call option on a stock? c. The volatility 5. When we talked about Vega hedging, if a portfolio has

asset. So what exactly are stock options? The investment education website Investopedia perhaps defines it best, stating, “An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties” (Investopedia Staff, Options Basics) . Despite its many stipulations, options trading is much

Problem: Hedging using Foreign Currency Derivatives problem: Scout Finch is the Chief Financial Officer [CFO] of Dayton Manufacturing, a U.S. based manufacturer of gas turbine equipment. She has just concluded negotiations for the sale of a turbine generator to Crown, a British firm for One million pounds. This single sale is quite large in relation to Dayton’s present business. Dayton has no other current foreign customers, so the currency risk of this sale is of particular concern. The sale is

implied in the prices at which long-term Telstar call options are trading is 35.900%. This is the estimated volatility I intend to use in my calculation of Sally’s stock options. 4. What is your estimate of the value of Sally’s ESO package? If you were to take the options and gamble on the stock price going forward, what percentage of the time do you think you would make more than what Black Scholes calculates? CALL OPTIONS: Telstar Communications S: Stock Price ($) $ 18.75000 X: Strike or Exercise