How to make a bet in the derivative market if you believe the price of crude oil will go down to $50/barrel from currently $115? O Buy call option with the strike (exercise) price of $20 O Go short on crude oil futures O Sell (write) a put option with strike (exercise) price of $100 O All of the above

How to make a bet in the derivative market if you believe the price of crude oil will go down to $50/barrel from currently $115? O Buy call option with the strike (exercise) price of $20 O Go short on crude oil futures O Sell (write) a put option with strike (exercise) price of $100 O All of the above

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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Normal vs inverted futures market What is a normal market for futures? What (a) ( does an inverted futures curve indicate? (b, ,- Is it normal or inverted? Why. i.e. does it indicate shortage of abundant supply of oil at the moment? )Consider the price quotes for oil futures below Oil future market is NORMAL /INVERTED (highlight correct, or erase wrong answer) Future curve indicate: SHORTAGE/ ABUNDANT SUPPLY of oil in the near future What would be the shape of the futures curve (c) for medical masks look like? Would it be normal or inverted? Why
Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held untilmaturity. Under what circumstances will the holder of the option make a profit? Underwhat circumstances will the option be exercised? Draw a diagram illustrating how the profitfrom a long position in the option depends on the stock price at maturity of the option. Suppose that a European put option to sell a share for $60 costs $8 and is held untilmaturity. Under what circumstances will the seller of the option (the party with the shortposition) make a profit? Under what circumstances will the option be exercised? Draw adiagram illustrating how the profit from a short position in the option depends on thestock price at maturity of the option.
What is a normal market for futures? What does an inverted futures curve indicate? (b) Consider the price quotes for oil futures below. Is it normal or inverted? Why. i.e. does it indicate shortage of abundant supply of oil at the moment? Oil future market is NORMAL / INVERTED (highlight correct, or erase wrong answer) Future curve indicate: SHORTAGE/ ABUNDANT SUPPLY of oil in the near future
Suppose that a European call option to buy a share for $ 90.00 costs a . Under what circumstances will the SELLER of the option make a profit ? \$4.00 and is held until maturity . ( DRAW the GRAPH to show ALL answers ) b . when will the option be exercised ( at what price , show on graph ) ? c . What is the Maximum profit for SELLER and at what stock price ? d . What is the Maximum loss for SELLER and at what stock price ? e . What will be profit / loss for SELLER if St is 150 ?
This question is about futures risk premia. Consider a two period economy.You can buy stocksin period 0, and then sell them in period 1. You can also enter into futures contracts in period 0, whichexpire in period 1. Since buying single-stock futures appears to be a fairly profitable trade, you decide toinvest in a futures strategy. You enter a long futures contract position. You also invest cash in period 0 at the risk-free rate, so you have just enough topay for the futures contract at expiration. You plan to sell the stock just after expiration. What is theexpected return on this trading strategy (in terms of expected period-1 dollars you get, per period-0dollar invested)?
Q9. How would you hedge the risk of a price rise using a derivative? Group of answer choices 1. You would take out a spot contract to sell the underlying. 2. You would take out a forward contract to sell the underlying. 3. You would take out a spot contract to buy the underlying. 4. You would take out a forward contract to buy the underlying.
2. Calculate the put premium according to put-call parity which gives no arbitrage opportunity. Explain what transaction would you do if the put premium is below/above the put premium you calculated. European call option premium: c = $2 Stock price today: So- $30 Life of option: T=0.5 Risk-free rate for maturity T with continous compounding: r= 8% Strike price: K= Decide on the K value yourself (carefully). No dividends paid during life of option.
A trader takes a view that March KLSE CI futures which are currently trading at 1188.60 are about to enter a downtrend. Should the trader go long or short futures. Assuming the trader maintains their original position until expiry and the cash settlement price is 1185.40, what will be the profit or loss? The contract size is RM50 per contract.
Assume you are a speculator who purchased a IPE Brent Crude call option contract at an exercise price of $52 by paying a premium of $2. If the price of the underlying asset moves to $ 48 what is your maximum loss or gain ? If the price of the underlying asset moves to $ 56 what is your maximum loss or gain ?
We are looking at a European put option and a European call option written on the same underlying asset, same exercise price and same time to expiration. There is no dividend paid prior to expiration. The current stock price is $130 and the exercise price is $125. Suppose you have figured out the delta of the put option is -0.4451, what is the delta of the call option? 0.4451 0.5549 -0.5549 -0.4451
An option is trading at $3.45. If it has a delta of .78, what would the price of the option be if the underlying increases by $.75? A. What would the price of the option be if the underlying decreases by $.55? B. What makes this a call option? C. With a delta of .78, is this option ITM, ATM or OTM and how?
A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?

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