Consider a call option whose maturity date is T and strike price is K. At any time t < T, is it always the case that the call option's price must be greater than or equal to max(St – K,0), where St is the stock price at t? (Your answer cannot be more than 30 words. Answers with more than 30 words will not be graded.)

Compared to long hedging, the advantage to using a call option is: A. Call options involve a one-time fixed payment and no need for a margin account B. Call options provide a form of "price insurance" and protect from a worst case scenario C. Call options allow for additional price gains if futures market prices continue to decline D.  All the above are advantages to using puts instead of short hedging

For each of the statements below, determine if they are TRUE/FALSE and briefly explain why. a)  Delta hedging is most difficult for at-the-money options just before their expiration. b)  A protective put with a higher strike price provides greater downside protection but lower upside gains. c)  A covered call with a lower strike price provides greater downside protection but a lower maximum gain on the upside. d)  It is possible to change the Gamma of a portfolio of options by adding the underlying assets to your position. e)  You have delta hedged a long call position on a stock. The stock price drops. To maintain your hedge, you need to buy back some shares.

Tick all those statements on options that are correct (and don't tick those statements that are incorrect). B a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion. b. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ker where T is the expiry time. An American put option should never be exercised before the expiry time. d. In general the equation S(T) +(K-S(T)) = (S(T)-K)+ +K is valid. e. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion. C.