Question
In: Finance
In time 0, an investor takes a calendar spread by selling two-year European call option and...
In time 0, an investor takes a calendar spread by selling two-year European call option and buying three-year European call option. These two options have the same strike price of $80 and are for the same stock that pays no dividends. The two-year option sells for $5 and the three-year option sells for $7. Two years later, the stock price turns out to be $90. The risk-free rate is 2% per annum. What is the minimum of the profit from this strategy? (We assume that we sell the longer-term option in year two).
Solutions
jeff jeffy answered 6 months agoRelated Solutions
In time 0, an investor takes a calendar spread by selling two-year European call option and...
In time 0, an investor takes a calendar spread by selling
two-year European call option and buying three-year European call
option. These two options have the same strike price of $80 and are
for the same stock that pays no dividends. The two-year option
sells for $5 and the three-year option sells for $7. Two years
later, the stock price turns out to be $90. The risk-free rate is
2% per annum. What is the minimum of the profit from...
A bull spread strategy is created by buying a European call option on a stock with...
A bull spread strategy is created by buying a European
call option on a stock with a certain strike price and selling a
European call option on the same stock with a higher strike price.
Both options have the same expiration date. Suppose that an
investor buys for £3 a 3-month European call with a strike price of
£29 and sells for £1 a 3-month European call with a strike price of
£34.
What is the total payoff of this...
Suppose that an investor is analysing one European call option on an underlying stock with the...
Suppose that an investor is analysing one European call option
on an underlying stock with the following characteristics: Option
price is $5, the current stock price is $95, the strike price =
$100, and the expiry date of the option is in 2 months. Which of
the following statements is incorrect?
Select one:
a. The break-even price for taking a long position in this call
option is $100.
b. Buying the call option will give the investor some advantages
over...
An investor sells a European call option with strike price of E and maturity T and...
An investor sells a European call
option with strike price of E and maturity T and buys a put with
the same strike price and maturity on the same underlying
asset.
a.Create a payoff table of this position at expiration
b. Show this payoff on a graph
1. An investor sells a European call option with strike price of E and maturity and...
1. An investor sells a European call option with strike price of
E and maturity and buys a put with the same strike price and
maturity on the same underlying asset. a. Create a payoff table of
this position at expiration b. Show this payoff on a graph
Consider a European call option on a stock. The stock price is $65, the time to...
Consider a European call option on a stock. The stock price is
$65, the time to maturity is 8 months, the risk-free interest rate
is 10% p.a., the strike is $70, and the volatility is 32%. A
dividend of $1 will be paid after 3 months and again after 6
months. What is price of the option?
Suppose that an investor has wrote a six month European call option on Dawn stock, a...
Suppose that an investor has wrote a six month European call
option on Dawn stock, a hypothetical company, with strike price of
$40 for a price of $2.what happens to the option price of
volatility on Dawns stock decreases?
1.option price will remain unaffected
2.option price will be more than 1.5$
3.option price will be less than 2$
4.none of the above
A. What is Price of a European Put option? B. Price of a European Call option?...
A. What is Price of a European Put option?
B. Price of a European Call option?
Spot price = $60
Strike Price = $44
Time to expiration = 6 months
Risk Free rate = 3%
Variance = 22% (use for volatility)
Show steps/formula
A European call option and a European put option on a stock both have a strike...
A European call option and a European put option on a stock both
have a strike price of $45 and expire in 6 months. Currently, the
stock price is $48.11 and the put price is $4.11. The risk-free
rate is 2% per annum continuous compounding. Calculate the CALL
price.
Assume the same investor decided to purchase a European call option on stock ABC. Further assume...
Assume the same investor decided to purchase a European call
option on stock ABC. Further assume that the current price of the
stock is $130. The investor paid $10 for the call with the strike
price at $155.
(A)If the stock price goes up to $160, what is the payoff to the
investor? (B) Further assumes that the investor also decided to
sell a European put option on the same underlying with the same
strike price of $155 and option...
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