You are bullish on Amazon’s stock (AMZN) which is currently selling for $1596.50. You have decided...

You are bullish on Amazon’s stock (AMZN) which is currently selling for $1596.50. You have decided to buy a 6-month call option with a strike price of $1,625. It costs $50.60 per share to buy the option. Assume the 6-month risk-free rate is 1% per annum with continuous compounding. a.Draw the profit and payoff function for the long call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike) b.Note each contract is for 100 call options. Calculate what the payoff and profit at expiration is if the spot price is _______.

i.$1,550

ii.$1,700

iii.$1,675.60

c.Draw the profit and payoff function for the short call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike)

Solutions

Expert Solution

jeff jeffy answered 1 month ago

Next > < Previous

Related Solutions

You are bullish on Amazon’s stock (AMZN) which is currently selling for $1596.50. You have decided...

You are bullish on Amazon’s stock (AMZN) which is currently selling for $1596.50. You have decided to buy a 6-month call option with a strike price of $1,625. It costs $50.60 per share to buy the option. Assume the 6-month risk-free rate is 1% per annum with continuous compounding. Draw the profit and payoff function for the long call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike)...

3. You are bullish on Apple stock, which is currently selling at $110 per share. You...

3. You are bullish on Apple stock, which is currently selling at $110 per share. You contribute $11,000 and borrow an additional $2,750 from your broker at an interest rate of 6% per year and invest $13,750 in the stock. (a) What is your rate of return if the stock price increases 10% during the next year? (b) How far does the stock price have to fall for you to get a margin call if the maintenance margin is 30%?...

You are bullish on BL stock. It is currently trading at $50 per share. You have...

You are bullish on BL stock. It is currently trading at $50 per share. You have $6,000 and want to invest as much as possible into this stock. The initial margin requirement for the stock is 40% and the maintenance margin is 25%. The broker charges 5% on borrowed margin funds. A) How many shares can you purchase, if you utilize your margin account fully? B) Suppose in exactly one year, the stock is now trading at $70 and you...

Suppose you see the following prices in a market: AMZN stock is currently trading for $1,913.76...

Suppose you see the following prices in a market: AMZN stock is currently trading for $1,913.76 A 1-year bond with a face value of $1,000 has a price of $970.87 A call option on AMZN stock with a maturity of 1 year and a strike of $1,900 has a premium of $286.34 A put option on AMZN stock with a maturity of 1 year and a strike of $1,850 has a premium of $265.45 There is an arbitrage opportunity in...

A Chinese investor bought 50,000 Yuans worth of stock in AMZN when it was selling for...

A Chinese investor bought 50,000 Yuans worth of stock in AMZN when it was selling for $950 and the exchange rate was 1USD = 6CNY. He just sold his shares for $ 1,650 per share and 1USD = 7CNY. What was the total return of the investor? What percentage of the total return was due to change in share price? What percentage of the return was due to change in exchange rate? Please show work on EXCEL with formulas.

You are bullish on Apple Inc. shares which are currently trading at $100 per share. You...

You are bullish on Apple Inc. shares which are currently trading at $100 per share. You have borrowed $50,000 to buy it on margin with an initial margin requirement of 50%. The maintenance margin is 30%. The interest rate on borrowed funds is 6% annually. a. How much should you invest out of your own pocket to be able to buy it on margin? (6 pts) b. How far can the stock price fall before you get a margin call?...

You are bullish about an underlying that is currently trading at a price of $80. You...

You are bullish about an underlying that is currently trading at a price of $80. You choose to go long one call option on the underlying with an exercise price of $75 and selling at $10, and go short one call option on the underlying with an exercise price of $85 and selling at $2. Both the calls expire in three months. What is the term commonly used for the position that you have taken? Determine the value at expiration...

You want to short 100 shares of H&B’s stock which is currently selling for $100. The...

You want to short 100 shares of H&B’s stock which is currently selling for $100. The dealer offers you a short position with an initial margin of 50% BUT with a maintenance margin of 40%. You use all of your funds to meet the initial margin. Suppose you are given knowledge of the stock’s future prices but have to act on it today (when stock is $100). Day 2: $105 Day 3: $110 Day 4: $90 1. Can you make...

Consider a stock which is currently selling at $4.5. The stock price will either go up...

Consider a stock which is currently selling at $4.5. The stock price will either go up to $5 + x with probability 0.5 or go down to $5 − x with probability 0.5 one period later. The one-period riskless rate of interest is 5%. a) What are the market prices of at-the-money put options that expire at the end of the period when x is set equal to $0.5, $1, $1.5, $2, and $2.5, respectively? b) Plot the one-period put...

Consider a stock which is currently selling at $4.5. The stock price will either go up...

Consider a stock which is currently selling at $4.5. The stock price will either go up to $5 + x with probability 0.5 or go down to $5 − x with probability 0.5 one period later. The one-period riskless rate of interest is 5%. (a) What are the market prices of at-the-money call options that expire at the end of the period when x is set equal to $0.5, $1, $1.5, $2, and $2.5, respectively?

Subjects