Problem 5: Option Strategy: Bear SpreadSuppose you buy one Texas Instruments August 85(strike price) put contract quoted at $8.50 per shareand write one Texas Instruments August 80 (strikeprice) put contract quoted at $6 per share. The currentprice of a share of Texas Instruments stock is $95. If,at expiration, the price of a share of Texas Instrumentsstock is $79, what would your profit/loss be? (Optionsare sold in groups of 100 shares and a premium is paidfor each of those shares). In addition, please draw thepayoff graph of this strategy and explain when you willuse this strategy. (x axis is the stock price and y axis isthe bear spread profit)

Bear Spread Strategy for Texas Instruments Options Given Information:Buy one August 85 put contract…

Answered: Problem 5: Option Strategy: Bear Spread…

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

See similar textbooks

Similar questions

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 ?
Don't table
7. Ahmed is strategizing to add option investment for short term on ABC stock that is currently trading at $35, the strike price is $40. With the interest rate of 3 percent and call option price of $2.45, what should be the put option price using put-call parity formula. A) $6.28 B) $2.85 C) unlimited D) $16.45 E) $9.70 my Show Transcribed Text
1. Strike = $60 Put = $8 / option Call = $10 / option Probable market values at maturity: 30, 40, 50, 60, 70, 80, 90. Size of contract: one share Required: a) Supposing that the market is on the rise and you are an options buyer, show the net results for each market value and graph them. b) Supposing that the market is on the rise and you are an options seller, show the net results for each market value and graph them. c) Supposing that the market is on the fall and you are an options buyer, show the net results for each market value and graph them. d) Supposing that the market is on the fall and you are an options seller, show the net results for each market value and graph them.
An investor buys a 6-month European call option with an exercise price of $35 for $6, and sells a 6-month European call option with an exercise price of $40 for $4. a) What kind of a spread does this strategy create? Answer in terms of “Bull Spread” versus “Bear Spread”. b) Calculate both the total payoff and profit on this strategy at the expiration of the options. Please use a Table (as in the class notes) to identify the payoff and profit.
MetaAn investor buys a put option contract for S of IBM Inc. stock, with a contract size of ton shares. The stock price is currently $35, and the exercise price is $10. What are the investor's expectations, and under what conditions does the investor make a profit? (1) Is this put option in-the-money? ii) Under what circumstances will the option be exercised? (iv) If at the expiration of the option, the stock price is $ so calculate the profit/loss of the investment and explain what the transactions are? Shall the investor exercise this option?
Basic Option Strategies Profit Computation Assume the below prices for calls and puts: Call Put Strike Jul Aug Oct Jul Aug Oct 165 2.7 5.25 8.1 2.4 4.75 6.75 170 0.8 3.25 6 5.75 7.5 1. Buy one August 170 call contract. Hold it until expiration. lIdentify the breakeven stock price at expiration. What is the profit/loss if ST=190? What is the maximum profit? 2. Buy one October 165 put contract. Hold it until the options expire. Identify the breakeven stock price at expiration. What is the Maximum possible loss from the transaction? What is the profit/loss if ST=185
Suppose you combine two option contracts as follows. You buy a call option on a stock with an exercise price of $65 for a premium of 9$. At the same time you sell a call option on the same stock with an exercise price of $75 for a premium of $4. Both calls expire at the same time. The stock sells currently at $72. Answer the following questions about this investment strategy: 1. Determinethevalueatexpiration(thepayoffs)andtheprofitunderthefollowingoutcomes: a. The price of the stock at expiration is $78b. The price of the stock at expiration is $69c. Thepriceofthestockatexpirationis$62 2. Determine the following:a. The maximum profit b. The maximum loss 3. Determinethebreakevenstockpriceatexpiration(thestockpriceforwhichyourstrategydeliversno profit and no loss). 4. Depictthepayoffandprofitdiagramsofyourinvestmentstrategy.
You purchase one put option contract on AMD with an exercise price of $100 for a premium of $3.7. You hold the option until the expiration date, when AMD sells for $108 per share. One contract is on 100 shares of the underlying stock. Compute your profit. Your Answer: Answer
$80. The call premium is $6 and the put premium is $8. To keep thìngs simple, you can assume each contract allows the holder to buy or sell 13) You buy one call contract and also buy one put contract, both with the strike price of one (rather than the typical 100) share of the underlying stock. a. Compute the payoff to your option position if the stock price is $92 when the options expire. b. Compute the profit you made if the stock price is $92 when the options еxpire. c. What would happen to the value of your position if the volatility of returns for the underlying stock increases a day after you bought the call and the put? Please explain your answer for full credit. E FC MacBook Pro I A !!!
Solve question b
Suppose you buy a stock at $70 together with a put option with a strike of $70 and a premium of $5. Your minimum payoff at expiration is $_----

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS