Question

In: Finance

An investor is considering buying a put option for stock ABC with the following parameters: Exercise...

An investor is considering buying a put option for stock ABC with the following parameters:

Exercise price of the put option is $170, initial stock price $165, put option price $8.

A. Define payoff and profit function and provide payoff and profit formulae for the put option buyer at maturity with respect to stock price at expiration.

B. Define payoff and profit function and calculate the payoff and profit for a protective put position at maturity when the stock price is $180 at expiration.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

An investor is considering buying a put option for stock ABC with the following parameters: Exercise...
An investor is considering buying a put option for stock ABC with the following parameters: Exercise price of the put option is $170, initial stock price $165, put option price $8. A. Define payoff and profit function and provide payoff and profit formulae for the put option buyer at maturity with respect to stock price at expiration.   B. Define payoff and profit function and calculate the payoff and profit for a protective put position at maturity when the stock price...
An investor is considering buying a put option for stock ABC with the following parameters: Exercise...
An investor is considering buying a put option for stock ABC with the following parameters: Exercise price of the put option is $170, initial stock price $165, put option price $8. A. Define payoff and profit function and provide payoff and profit formulae for the put option buyer at maturity with respect to stock price at expiration.   B. Define payoff and profit function and calculate the payoff and profit for a protective put position at maturity when the stock price...
An investor buys a butterfly spread on COPCO stock by buying one put option with an...
An investor buys a butterfly spread on COPCO stock by buying one put option with an exercise price of $50 for $1, buying one put option with an exercise price of $60 for $7 and selling two put options with an exercise price of $55 for $3 each. (above relates to the 3 questions below) (Please show workings) 1. If COPCO’s expiration date stock price is $48, the investor’s profit is: (a) $5 (b) -$2 (c) $1 (d) -$7. 2....
A protective put position is formed by buying the stock and buying a put option on...
A protective put position is formed by buying the stock and buying a put option on the same stock. Given the following quotations from April 25, 2017 for Amazon stock and an Amazon put option, answer the questions below. Closing price of Amazon stock = $832 per share. Option strike price = $800 Closing price of the put option = $18.30 Put option expiration date: June 16, 2017   a) Plot the payoff and profit diagrams for the protective put position...
Hedging with a put option Suppose that an investor owns one share of ABC stock currently...
Hedging with a put option Suppose that an investor owns one share of ABC stock currently priced at $30. The investor is worried about the possibility of a drop in share price over the next three months and is contemplating purchasing put options to hedge this risk. The put option is having a strike of $30 and premium of $1.50. Compute the profit of a a. un-hedged position if the stock price in three months is $25 b. *un-hedged position...
You are considering buying a three month put option on Wing and a Prayer Construction stock....
You are considering buying a three month put option on Wing and a Prayer Construction stock. The company's stock currently trades for $10 per share and its price will either rise to $15 or fall to $7 in three months. The risk-free rate for three months is 2%. What is the appropriate price for a put option with a strike price of $9?
Suppose an investor sells (writes) a put option. What will happen if the stock price on...
Suppose an investor sells (writes) a put option. What will happen if the stock price on the exercise date exceeds the exercise price? answer choices a.The seller will need to deliver stock to the owner of the option. b.The seller will be obliged to buy stock from the owner of the option. c.The owner will not exercise his option. d.The option will extend for nine more months.
A stock`s current price is $30. A put option written on this stock has the exercise...
A stock`s current price is $30. A put option written on this stock has the exercise price at $32. The time to maturity of this put option is 2 years, and the risk-free rate is 5% per year. If currently, this put option is selling at $2.1, please find the implied volatility of the stock.
Q5 you have purchased a put option on Pfizer common stock. The option has an exercise...
Q5 you have purchased a put option on Pfizer common stock. The option has an exercise price of $39 and Pfizer’s stock currently trades at $41. The option premium is $0.60 per contract. a. What is your net profit on the option if Pfizer’s stock price does not change over the life of the option? b. What is your net profit on the option if Pfizer’s stock price falls to $35 and you exercise the option? (For all requirements, negative...
You have purchased a put option on Pfizer common stock. The option has an exercise price...
You have purchased a put option on Pfizer common stock. The option has an exercise price of $52 and Pfizer’s stock currently trades at $54. The option premium is $0.70 per contract. a. What is your net profit on the option if Pfizer’s stock price does not change over the life of the option? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))   Net profit $  per share b. What is your...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT