Question

Question 9 You wrote 10 call options with a strike price of $75 and a premium $3.85. Calculate your gain/ loss if the stock price at expiration is either $82 or $72? A. For stock price $82, loss=$3150 and for stock profit $72, dollar return is -$3150 B. For stock price $82, profit=$3850 and for stock profit $72, dollar return is 0 C. For stock price $82, profit=$3150 and for stock profit $72, dollar return is -$3850 D. For stock price $82, Loss=$3150 and for stock profit $72, dollar return is $ 3850 Question

10 You were expecting the market to correct for the last couple of months and see that it is happening over the last few weeks. You are expecting to receive $20,000 from an external source that you are planning to buy the SPDR ETF next month but would not want to miss out on the current price levels (in case the S&P 500 levels go up). Explain how you will lock in the current levels using options. Use today’s price on the SPY and give an estimate of the cost to do so?

Question 11 The Venezuela fund has $560 million in assets and sells at a premium of 2.07% to NAV. If the quoted price of this closed-end fund is $14.29, how many shares are outstanding if you purchased 1000 shares? A. Wrong information closed-end funds only sell at discounts B. 40 million C. 42.5 million D. 36.5 million

Answer 1

Ques 9 - Option D is correct. We have written call option with a strike price of $75 and received premium of $3.85/call.In case of call writing , you will loose when expiry price of stock is more than Strike price + premium received i.e $75+3.85 = $78.85.

If expiry price of stock is less than Strike price + premium received i.e $75+3.85 = $78.85, then you will earn dollar return.

In this question, if the expiry price is $82, then Loss will be $82-78.85 = $3.15/call.

So, total loss will be $3150.

If the expiry price is $ 72, then dollar return would be pemium received i.e $3.85/call.

So, total profit will be $ 3850.

Answer 10)..

In order to Lock the current levels of SPY i.e. $323.75, the best strategy would be buying the In the money call option of $323 of Next month Expiry i.e. Oct-20 which is available at $13.47. these will give us Right to Buy SPY in case the price of SPY goes up from current price.

Total cost of locking current price would be $13.47 i.e. premium amount which we have to pay for buying call option.

Ans 11 ) option b is correct.

close end funds are funds which are traded on exchange regularly.Quote price of the fund is $ 14.29 and fund has assets of $560 millions and fund sells at 2.07% premium, therefore, Assets would be = 560+2.07% = $571.59 million.

Total share outstanding = total assets/quoted price

= 571.59 million/14.29 = 40 million shares