Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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parts a, b, c
Suppose an investor is considering a multi option strategy on a stock with a current
price of $100. The following strategy is called a strangle. The investor purchases a call option
with a strike price of $110 for a premium of $5 and purchases a put option with a strike price
of $90 for a premium of $3.
a) Draw a payout diagram for the strangle option strategy at expiration.
b) Determine the breakeven points for the strangle option strategy.
c) Suppose the stock price at expiration is $120. What is the profit for the strangle option
strategy?
d) Suppose the stock price at expiration is $85. What is the profit for the strangle option
strategy?
e) What is the investor speculating on with her option strategy?
price of $100. The following strategy is called a strangle. The investor purchases a call option
with a strike price of $110 for a premium of $5 and purchases a put option with a strike price
of $90 for a premium of $3.
a) Draw a payout diagram for the strangle option strategy at expiration.
b) Determine the breakeven points for the strangle option strategy.
c) Suppose the stock price at expiration is $120. What is the profit for the strangle option
strategy?
d) Suppose the stock price at expiration is $85. What is the profit for the strangle option
strategy?
e) What is the investor speculating on with her option strategy?
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- 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.arrow_forwardThe investor Y decides to: Buy a call option for $5 with $200 as strike price Sell a put option for $10 with $100 as strike price a)Calculate the result of the investor if the market price is $60 b)Calculate the result of the investor if the market price is $260 c)Represent the results of the investor for both cases a) and b) in the same figurearrow_forwardGive typing answer with explanation and conclusion You are considering purchasing a put on a stock with a current price of $33. The exercise price is $35, and the price of the corresponding call option is $3.25. According to the put-call parity theorem, if the risk-free rate of interest is 4% and there are 90 days until expiration, the value of the put should be:arrow_forward
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- a one year call option on a stock with a price of $40 costs $1; a one-year put option on the stock with a strike price of $35 costs $4. suppose that a trader buys two cal options and one put option. the breakeven stock price above which the trader makes a profit is a) $42 b) $45 c) $44 d) $43arrow_forwardTopic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places Based on the Black-Scholes model, the price of a put option should be P2,800. If the underlying asset has a strike price of P60,000 and a market price of P58,500, how much is the extrinsic value of the option?arrow_forward
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