Question

In: Finance

You bought a call option with a strike price of $60. The underlying asset is trading...

You bought a call option with a strike price of $60. The underlying asset is trading for $53 and you paid a premium of $14. What is the most you could lose form this strategy?

Solutions

Expert Solution

Maximum Loss under this strategy will be limited to the extent of premium paid, i.e., $14

Strike Price = $60
Call Option - Right to Buy
Spot @ Expiry $        40 $          50 $          60 $          70 $          80 $            90 $                  100
Long Call Out of Money Out of Money Out of Money At the Money In the Money In the Money In the Money
Action Not Exercised Not Exercised Not Exercised - Exercise Exercise Exercise
Premium Paid $      (14) $        (14) $        (14) $        (14) $        (14) $          (14) $                  (14)
Settlement $         -   $           -   $           -   $           -   $          20 $            30 $                    40
Net Payoff $      (14) $        (14) $        (14) $        (14) $             6 $            16 $                    26

Related Solutions

You long a call option with a strike price of K. The underlying asset price on...
You long a call option with a strike price of K. The underlying asset price on expiration date is S. What is your payoff? Group of answer choices S - K if S > K, but zero otherwise. K - S if K > S, but zero otherwise. 0 S - K You short a call option with a strike price of K. The underlying asset price on expiration date is S. What is your payoff? Group of answer choices...
Consider a call option with a strike price of $60 where the underlying stock is currently...
Consider a call option with a strike price of $60 where the underlying stock is currently trading at $67 the continuously compounded risk free rate is 5%, and the standard deviation of the stock returns is 40% per year. The option has 9 months to expiration. Using the Black-Scholes model, what is the value of the call option?
A four-month call option with $60 strike price is currently selling at $5. The underlying stock...
A four-month call option with $60 strike price is currently selling at $5. The underlying stock price is $59. The risk-free rate is 12% p.a. The put with same maturity and strike price is selling at $3.5. Can an arbitrageur make riskless profit? If ‘YES’ what strategies an arbitrageur should take to make this profit? If your answer above is ‘YES’, calculate the arbitrage profit by completing the following table showing strategy (i.e., whether buying or selling put/call portfolio); position,...
Given the following: Call Option: Strike Price = $60, expiration costs $6 Put Option: Strike Price...
Given the following: Call Option: Strike Price = $60, expiration costs $6 Put Option: Strike Price = $60, expiration costs $4 In excel, show the profit from a straddle for this. What range of stock prices would lead to a loss for this? Including a graph would be helpful.
Consider a call option with strike price of 2.5. Underlying stock is expected to follow the...
Consider a call option with strike price of 2.5. Underlying stock is expected to follow the distribution: Price Prob 1 0.05 2 0.20 3 0.25 4 0.25 5 0.20 6 0.05 1. When stock price is above the strike price of 2.5, what is the average value of the stock? (hint: first find conditional probabilities and then find weighted average) 2. What is the average payment from the call option when the call option is in the money (ie stock...
BXP is currently trading at $91/share. You bought 6 CALL-option contracts on BXP with a strike...
BXP is currently trading at $91/share. You bought 6 CALL-option contracts on BXP with a strike price of $90 for $4.0 each and sold 6 CALL-option contracts on BXP with a strike price of $100 for $2.0 each. a. What will be your total $ and % gain/loss if BXP price is $102 at the expiration date? b. What will be your total $ and % gain/loss if BXP price is $85 at the expiration date? c. What will be...
CPT is currently trading at $95/share. You bought 3 CALL-option contracts on CPT with a strike...
CPT is currently trading at $95/share. You bought 3 CALL-option contracts on CPT with a strike price of $90 for $8 each. a. What will be your total $ and % gain/loss if CPT price is $95 at the expiration date? b. What will be your total $ and % gain/loss if CPT price is $90 at the expiration date? c. What will be your total $ and % gain/loss if CPT price is $85 at the expiration date?
The price of a one-year at the money call option is 7.07. The underlying asset is...
The price of a one-year at the money call option is 7.07. The underlying asset is a stock that pays dividends at a rate of 4%. The stock’s volatility is 30% and the current risk-free interest rate is 10%. The call’s Delta is equal to .611831. Determine the current price of the stock.
A call option on a stock with a strike price of $60 costs $8. A put...
A call option on a stock with a strike price of $60 costs $8. A put option on the same stock with the same strike price costs $6. They both expire in 1 year. (a) How can these two options be used to create a straddle? (b) What is the initial investment? (c) Construct a table that shows the payoffs and profits for the straddle when the stock price in 3 months is $50, and $72, respectively. The table should...
A call option with a strike price of 55$ can be bought fo $4 what will...
A call option with a strike price of 55$ can be bought fo $4 what will be your net profit if you sell the call and the stock price is 52$ when the call expires? Can you please elaborate on the answer. thanks
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT