In: Finance

The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices.

Calls |
Puts |
|||

Strike |
March |
June |
March |
June |

45 |
6.84 |
8.41 |
1.18 |
2.09 |

50 |
3.82 |
5.58 |
3.08 |
4.13 |

55 |
1.89 |
3.54 |
6.08 |
6.93 |

Suppose you closed the spread 60 days later. What will be the profit if the stock price is still at $50?

CALLS | PUTS | ||||||||

A | B | C | D | E=B-A | F=D-C | ||||

Strike | March | June | March | June | Call Spread Net PresentCost | Put Spread Net Present Cost | |||

45 | 6.84 | 8.41 | 1.18 | 2.09 | 1.57 | 0.91 | |||

50 | 3.82 | 5.58 | 3.08 | 4.13 | 1.76 | 1.05 | |||

55 | 1.89 | 3.54 | 6.08 | 6.93 | 1.65 | 0.85 | |||

As Per Calender Spread Strategy, | |||||||||

June Options will be bought and March option will be sold | |||||||||

For buying an option, you need to pay | |||||||||

For Selling and option you will get premium | |||||||||

CALL OPTION PAYOFF : | |||||||||

Payoff for Buying an option With Strike Price =St and Price at Expiration =50 | |||||||||

Payoff =Max((50-St),0) | |||||||||

Payoff for Selling an option With Strike Price =St and Price at Expiration =50 | |||||||||

Payoff =Min.((St-50),0) | |||||||||

PUT OPTION PAYOFF: | |||||||||

Payoff for Buying an option With Strike Price =St and Price at Expiration =50 | |||||||||

Payoff =Max((St-50),0) | |||||||||

Payoff for Selling an option With Strike Price =St and Price at Expiration =50 | |||||||||

Payoff =Min.((50-St),0) | |||||||||

CALCULATION OF PROFIT | |||||||||

Present Value of Future Cash Flow | |||||||||

Interest Rate =6%=0.06, Time =60 days =2/12 Years | 0.166667 | Years | |||||||

PV =(Cash flow)/(e^(0.06*0.1667) | |||||||||

PROFIT FOR CALL OPTIONS CALENDER SPREAD | |||||||||

A | B | C=A+B | D=C/(e^(0.06*0.1667) | E | F=D-E | ||||

Strike | Payoff | Payoff | Net | Present | Net Cost | Profit On Call Option | |||

March Call(Sell) | June Call(Buy) | Payoff | Value | Calender Spread | |||||

45 | -5 | 5 | 0 | 0 | 1.57 | -1.57 | |||

50 | 0 | 0 | 0 | 0 | 1.76 | -1.76 | |||

55 | 0 | 0 | 0 | 0 | 1.65 | -1.65 | |||

PROFIT FOR PUT OPTIONS CALENDER SPREAD | |||||||||

A | B | C=A+B | D=C/(e^(0.06*0.1667) | E | F=D-E | ||||

Strike | Payoff | Payoff | Net | Present | Net Cost | Profit On PUT Option | |||

March PUT(Sell) | June PUT(Buy) | Payoff | Value | Calender Spread | |||||

45 | 0 | 0 | 0 | 0 | 0.91 | -0.91 | |||

50 | 0 | 0 | 0 | 0 | 1.05 | -1.05 | |||

55 | -5 | 5 | 0 | 0 | 0.85 | -0.85 | |||

A stock, priced at $47.00, has 3-month call and put options with
exercise prices of $45 and $50. The current market prices of these
options are given by the following:
Exercise Price
Call
Put
45
$4.50
$2.20
50
$2.15
$4.80
Now, assume that you already hold a sizable block of the stock,
currently priced at $47, and want to hedge your stock to lock in a
minimum value of $45 per share at a very low up-front initial
cost.
a)...

Call options on a stock are available with strike
prices of $15, $17.5, and $20 and
expiration dates in 3-months. Their
prices are $4, $2, and $0.5, respectively. An investor creates
a portfolio by buying call options with strike
prices of $15 and $20 and selling 2 call options
with strike prices of $17.5.
a. Construct a table showing how profit varies with the stock
price for this portfolio.
b. Plot the payoff diagram?

Call options on a stock TKM are available with strike prices of
$13, $15, $17.5, $18.5 and $20 and expiration dates in three
months. Their prices are $5.5, $4, $2, $1.5 and $0.5 respectively.
Put options on the same stock are available with strike prices of
$24, $23.5, $22.5, $21 and $19 and expiration dates in three
months. Their prices are $5, $4, $2, $1.5 and $0.5 respectively.
TKM is currently trading at $19.40 and assuming the company is in...

Call options on a stock TKM are available with strike prices of
$13, $15, $17.5, $18.5 and $20 and expiration dates in three
months. Their prices are $5.5, $4, $2, $1.5 and $0.5 respectively.
Put options on the same stock are available with strike prices of
$24, $23.5, $22.5, $21 and $19 and expiration dates in three
months. Their prices are $5, $4, $2, $1.5 and $0.5 respectively.
TKM is currently trading at $19.40 and assuming the company is in...

Three put options on a stock have the same expiration date and
strike prices of $50, $60, and $70. The market prices are $3, $5,
and $9, respectively. Harry buys the $50 put, buys the $70 put and
sells two of the $60 puts. Harry's strategy potentially makes money
(i.e. positive profit) in which of the following price ranges?
$40 to $50
$70 to $80
$85 to $95
$55 to $65

Suppose there are call options and forward contracts available
on coal, but no put options. Show how a financial engineer could
synthesize a put option using the available contracts. What does
your answer tell you about the general relationship among puts,
calls and forwards?

Suppose there are call options and forward contracts available
on coal, but no put options. Show how a financial engineer could
synthesize a put option using the available contracts. What does
your answer tell you about the general relationship among puts,
calls and forwards?

Suppose there are call options and forward contracts available
on coal, but no put options. Show how a financial engineer could
synthesize a put option using the available contracts. What does
your answer tell you about the general relationship among puts,
calls and forwards?

The following options are available:3-month European call with a strike price of $20 that is priced at $1.003-month European put with a strike price of $20 that is priced at $4.003-month call with a strike price of $25 that is priced at $8.503-month put with a strike price of $25 that is priced at $7.00Currently, the price of the underlying stock is $25.501)Identify all arbitrage trades, not considering interest.2)For each set of trades you will make, please describe the trades...

Given the following information, what is the value of the
corresponding call and put options? Stock price (P) is $35.60,
exercise price (EX) is $50, time to expiry is nine months,
risk-free rate (rRF) is 3.25%, standard deviation (σ) is 45%, and
d1 is -0.78921.

ADVERTISEMENT

ADVERTISEMENT

Latest Questions

- A small metal bead, labeled A, has a charge of 29 nC . It is touched...
- Describe current recordkeeping approaches in clinics or wellness centers. What steps would ensure client access and...
- this is a C++ class Topics Numeric Input (Whole Numbers) Assignment Finding Quotient Finding Remainder Numeric...
- Describe the purpose of the logical network perimeter mechanism and how it establishes a logical boundary....
- Question: Reverse Polish notation is a notation where every operator follows all of its operands. For...
- Two broad perspectives have been outlined; the consensus perspective and the conflict perspective. The contemporary The...
- Create a matlab function that converts Miles per hour to feet per second. Please show code...

ADVERTISEMENT