Suppose the premium on the 434.6-strike put is $17.55, while the premium on the 420-strike put...

Suppose the premium on the 434.6-strike put is $17.55, while the premium on the 420-strike put is $8.775. Construct a pay later strategy by selling a 434.6-stike put and buying two 420-strike puts.

1. Draw the payoff of the pay later strategy

Draw a diagram

2. Write the net payoff algebraically

Expert Solution

jeff jeffy answered 1 year ago

1a) Suppose a put option with a strike price of $65 has a premium of $11,...

1a) Suppose a put option with a strike price of $65 has a premium of $11, while another put on the same underlying stock has a strike price of $70 and a premium of $9. Both options expire at the same time. In this situation, an arbitrageur would... Answers: a. do nothing because arbitrage is not possible. b. buy both put options. c. buy the 70-strike put and sell the 65-strike put. d. buy the 65-strike put and sell the...

What is the strike price given the put and call premium?

Suppose the premium on a 6-month S&R call is $109.20 and the premium on a put with the same strike price is $60.18. Given that the effective 6-month interest rate is 2%, the S&R 6-month forward price is $1020, what is the strike price?

Suppose you short a put option with a strike price of $20 and long another put...

Suppose you short a put option with a strike price of $20 and long another put option with a strike price of $18. Assume the premium for the first option is $1 and the premium for the second option is $0.5. Which of the following is correct? You wish the stock price stays above $20. If stock price is at $19.8, you have incurred a loss. You only have a loss if the stock price goes below $18. You only...

Suppose a call option with a strike price of $43 costs $5. Suppose a put option...

Suppose a call option with a strike price of $43 costs $5. Suppose a put option with a strike price of $43 also costs $5. You decide to enter a strip (\/), which has a slope of negative 2 prior to the kink point and positive 1 after the kink point. What is the profit of the strategy if the stock price is 37 at expiration? (required precision: 0.01 +/- 0.01)

Suppose a put option has X=144 and Premium=0. As a seller of the put, what is...

Suppose a put option has X=144 and Premium=0. As a seller of the put, what is the minimum profit?

Suppose that a June put option on a stock with a strike of $60 costs $4...

Suppose that a June put option on a stock with a strike of $60 costs $4 and is held until June. Under what circumstances will the option be exercised? Under what circumstances will the holder of the option make a gain? Under what circumstances will the seller of the option make a gain? What is the maximal gain that the seller of the option can make? Under what circumstances will the seller of the option make the maximal gain?

The put option of Joe Inc. is currently trading at $2.50 while the call option premium...

The put option of Joe Inc. is currently trading at $2.50 while the call option premium is $7.50. Both the put and the call have an exercise price of $25. Joe Inc. stock is currently trading at $32.25 and the risk free rate is 3%. The options will expire in one month. I. An investor applies a protective put strategy by buying the put option of Joe Inc. to protect his holding of the company’s stock. This strategy creates a...

Bob writes a two-year 100-strike European put with a premium of $10. The continuously compounded risk-free...

Bob writes a two-year 100-strike European put with a premium of $10. The continuously compounded risk-free interest rate is 4%. Calculate the difference between Bob’s maximum profit and his minimum profit

A put option to sell 62,500 Euros in three months for $0.9200/€ (strike price) has a premium of 1.52 cents

A put option to sell 62,500 Euros in three months for $0.9200/€ (strike price) has a premium of 1.52 cents per Euro. If the spot rate on the expiration date of the option is $0.9000/€, what is the overall profit/loss of the put writer?• zero• $300• $1250• $950

Graph the pay-off and profit from writting a European put option with option price (premium)=$10, strike...

Graph the pay-off and profit from writting a European put option with option price (premium)=$10, strike price=$50. Also calculate the intrinsic value of this option if the stock price is $45

Question