The common stock of Texas Energy Company is selling at $90. A 1-year call option written...

The common stock of Texas Energy Company is selling at $90. A 1-year call option
written on Texas’s stock is selling for $8. The call’s exercise price is $100. The risk-free
interest rate is 1% per year. Suppose that puts on Texas stock are not tradable, but you
want to hold one. How would you do it? Suppose that puts are traded, what should a 1-
year put with an exercise price of $100 sell for?

Solutions

Expert Solution

To create a synthetic put: Buy 1 call, sell 1 share of underlying stock and invest/lend money at risk free rate of 1%.

Using Put Call parity
P=C+X/(1+r)^t-S=8+100/(1+1%)^1-90=17.010
Price of put=17.010

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

You have written a call option on Walmart common stock. The option has an exercise price...

You have written a call option on Walmart common stock. The option has an exercise price of $88, and Walmart’s stock currently trades at $86. The option premium is $1.30 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $84 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price...

You have written a call option on Walmart common stock. The option has an exercise price...

You have written a call option on Walmart common stock. The option has an exercise price of $77, and Walmart’s stock currently trades at $75. The option premium is $1.40 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $73 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price...

Assume the following for a stock and a call and a put option written on the...

Assume the following for a stock and a call and a put option written on the stock. EXERCISE PRICE = $20 CURRENT STOCK PRICE = $20 VARIANCE = .25 TIME TO EXPIRATION = 3 MONTHS RISK FREE RATE = 3% Use the Black Scholes procedure to determine the value of the call option and the value of a put.

Assume the following information for a stock and a European call option written on the stock...

Assume the following information for a stock and a European call option written on the stock ,Exersice price 80,current stock price 70,the variance is0.4,time to expiration 0.5 semi annum ,risk free rate of return 0.07.Detaermin the time premium using Binomial ,assume it is a two period call option.

The common stock of a company is selling today for $53.69. Call options on the company...

The common stock of a company is selling today for $53.69. Call options on the company expiring in 1-month with strike prices of $49 and $56 are selling for $4.80 and $0.36, respectively. How would you form a bull call spread with the two options (state what kind of options you would buy or sell at what strike price to form a call spread)? What is the cost of each spread? If you have $890 on hand, how many spread...

The common stock of a company is selling today for $53.69. Call options on the company...

The common stock of a company is selling today for $53.69. Call options on the company expiring in 1-month with strike prices of $49 and $56 are selling for $4.80 and $0.36, respectively. a. How would you form a bull call spread with the two options (state what kind of options you would buy or sell at what strike price to form a call spread)? What is the cost of each spread? b. If you have $890 on hand, how...

Use the Black–Scholes formula to value the following option: A call option written on a stock...

Use the Black–Scholes formula to value the following option: A call option written on a stock selling for $60 per share with a $60 exercise price. The stock's standard deviation is 6% per month. The option matures in three months. The risk-free interest rate is 1% per month. What is the value of a put option written on the same stock at the same time, with the same exercise price and expiration date.

Call Option You have taken a long position in a call option on UBR common stock....

Call Option You have taken a long position in a call option on UBR common stock. The option has an exercise price of $142 and IBM’s stock currently trades at $145. The option premium is $6 per contract. a. What is your net profit on the option if UBR’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium you paid is due to intrinsic value and how...

Consider a portfolio that consists of buying a call option on a stock and selling a...

Consider a portfolio that consists of buying a call option on a stock and selling a put option. The stock pays continuous dividends at the yield rate of 5%. The options have a strike of $62 and expire in six months. The current stock price is $60 and the continuously compounded risk-free interest rate is 15%. Find the elasticity of this portfolio.

Assume that a stock is selling at a price of $100. The 95 call option on...

Assume that a stock is selling at a price of $100. The 95 call option on the stock sells for $5 and the 105 put option sells for $8. What is the intrinsic and time value on the 95 call and $105 put? If the stock increases to $110, what will be the dollar and percentage return on the call option. What will be the return on the put option? Assume that the investor writes a call option on the...

Subjects