Suppose that put options on a stock with strike prices $18 and $20 cost $2 and $3.50, respectively. How can the options be used to create a bull spread? Construct a table that shows the profit and payoff for the spread.

4. Answer the following questions on exotic options: (a) Discuss the differences between a combination and a spread when constructing portfolios of options. (b) Define a long strangle and represent the profit function. (c) Design a forward contract on a stock with a particular delivery price and delivery date as a combination of options on the same underlying asset.

There are various ways to calculate the price of a call option using the Black-Scholes model. Below is a spreadsheet that breaks the required formulas into pieces to make it easy to work with. Column (1) shows the various inputs. The first five cells are the required inputs for a non-dividend paying stock. The remainder of the cells are the formula parts. Column (2) shows a solved problem for a stock selling for $50, with an exercise price of $45, an interest rate of 6 percent, 90 days (one-quarter of a year), and a standard deviation of .235. Column (3) shows how the cell values in Column (2) were calculated. Once you have this set up in the spreadsheet, you can calculate the price of any call option by substituting the correct values in the first five cells of column (2). Spreadsheet begins in row 2. Calculating a Call Price Using the Black-Scholes Model S 50 45 R 0.06 T 0.25 S 0.235 In(S/X) 0.105361 LN(B2/B3) r+0.50? 0.087613 B4+(,5)*(B6)^2 o(t)½ 0.1175 В6*((B5)^0.5) dl 1.083095…

(i)Demonstrate how a bear and a bull spread are created using options and explain the circumstances under which a trader might construct each spread.                             (ii)Use a numerical example to evaluate the potential payoffs and profits from a strip and a strap combination.

please give me answer

A butterfly spread is a position in three options on the same underlying stock with different strikes. An investor buys one call with a strike K1 = 22, sells two calls with a strike K2 = 24 and buys one call with a strike K3 = 26. What is the payoff of the butterfly spread, if the stock price equals $26 at maturity?

Explain in your own words what dynamic hedging is, and how a trader could profit by dynamically hedging an option if they have a forecast of volatility that is different to implied volatility.

You see that three put options on a stock with strike prices of $55, $60, and $65 are $3, $5, and $8, respectively. You have the ability to use those options to create a butterfly spread.

Assume that there are three different put options on a stock available and that all of them have the same expiration date. These three options have the following market prices $6, $3, and $1, and strike prices $40, $35, and $30, respectively. Construct a butterfly spread and show the relevant profits and losses. The use of graph is essential.

A stock price is currently $23. A butterfly spread (ie. options are bought with strike prices of K₁ and K3, and two options with the middle strike price K₂ are sold) is created from call options with strike prices of $20, $25, and $30. Which of the following is TRUE? Select one alternative: O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20. O The loss when the stock price is greater than $30 is the same as the loss when the stock price is less than $20. The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20. O The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20.