In: Finance
European call option on Sunny Resorts Inc (SRI) has a strike price of $40 and exercise date of three months.
a)With respect to the buyer of the call option, draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration.
b)With respect to the seller of the call option, draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration
Question 2: Put Option
A European put option on Sunny Resorts Inc (SRI) has a strike price of $40 and exercise date of three months.
a)With respect to the buyer of the put option, draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
b)With respect to the seller of the put option, draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
Question 3 Option Premiums
Sunny Resorts Inc (SRI) stock is trading today at $50 per share.There are multiple European options on SRI, which all have an exercise date of three months.
a)The first call option has the strike price of $45, whereas, a second call option has the strike price of $55.What can you conclude about the premium of each of the call options?
b)The first put option has the strike price of $45, whereas, a second put option has a strike price of $55. What can you conclude about the premium of each of the put options