A put option with an exercise price of $45 is currently selling for $5.The delta for the put is -0.4, and the stock is currently selling for $50.What is the elasticity of the put?

The elasticity of a put option can be calculated using its delta. Elasticity measures the…

Answered: A put option with an exercise price 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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- You purchased 250 shares of common stock on margin for $28 per share. The initial margin is 70% and the stock pays no dividend but has a trading cost of $0.1 per share. Your rate of return would be if you sell the stock at $36 per share. Ignore interest on margin.
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Question 1. A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3. Explain how a strangle can be created from these two options. What is the pattern of profits from the strangle?
This section asks you to calculate prices for various options. In all cases, consider a rate r = 7.97% per year. Estimate the volatility of returns using the estimator: 1 n-1 σ²≈ T-t i=0 Si+1 log. Sti 2 The term of each option will be T = 182/360 (half a year). Determine a reasonable strike K, which is at similar levels to the price series you have downloaded. An option is a derivative instrument that gives its holder the right to buy or sell an underlying asset at a pre-agreed price K at a future date T. If this right can only be exercised in time T, we say that the option is of the European type. If it can be exercised at T or at any time prior to T, then we say that the option is American. Likewise, if the option grants the right to buy, we say that the option is Call type, if it grants the right to sell then the option is Puttype. These types of options are the simplest and are known as European vanilla options. In this case, if T is the expiration date of the contract, and St is…
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A put option with an exercise price of $45 is currently selling for $5.
The delta for the put is -0.4, and the stock is currently selling for $50.
What is the elasticity of the put?

A put option with an exercise price of $45 is currently selling for $5. The delta for the put is -0.4, and the stock is currently selling for $50. What is the elasticity of the put?