Question
In: Finance
You think that a stock price is going to swing into a certain range. Hence, in...
You think that a stock price is going to swing into a certain
range. Hence, in order to limit your risk (and your return as
well), you decide to buy one put for $7 with exercise price of 110;
buy one put for $1 with exercise price of 95; sell one put for $4
with exercise price of 105; and sell one put for $2 with exercise
price of $100.
(a) What is your maximum profit and maximum loss of this
option strategy? (hint: using a table, develop profit and loss
scenarios for the following stock prices: $90, $100, $105, $110)
(Note that each option contract includes 100 stocks)
(b) What is your breakeven point?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You think that a stock price is going to swing into a certain range. Hence, in...
You think that a stock price is going to swing into a certain
range. Hence, in order to limit your risk (and your return as
well), you decide to buy one put for $7 with exercise price of 110;
buy one put for $1 with exercise price of 95; sell one put for $4
with exercise price of 105; and sell one put for $2 with exercise
price of $100. (a) What is your maximum profit and maximum loss of...
You would like to speculate on a rise in the price of a certain stock. The...
You would like to speculate on a rise in the price of a certain
stock. The current stock price is RM25, and a three-month call
option with a strike price of RM30 costs RM2.5. You have RM1,000 to
invest. Identify two alternative strategies, one involving an
investment in stock and the other involving investment in option.
What are the potential gain and losses from each?
You would like to speculate on a rise in the price of a certain stock. The...
You would like to speculate on a rise in the price of a
certain stock. The current stock price is $40 and a three-month
call with a strike price of $42 costs $2.50. You have $5,000 to
invest. Identify two alternative strategies. Outline the advantages
and disadvantages of each.
Suppose you think FedEx stock is going to appreciate substantially in value in the next 6...
Suppose you think FedEx stock is going to appreciate
substantially in value in the next 6 months. Say the stock’s
current price, S0, is $200, and the call option
expiring in 6 months has an exercise price, X, of $200 and
is selling at a price, C, of $20. With $20,000 to invest,
you are considering three alternatives.
a.
Invest all $20,000 in the stock,
buying 100 shares.
b.
Invest all $20,000 in 1,000
options (10 contracts).
c.
Buy 100...
Q12. Suppose you think AppX stock is going to appreciate substantially in value in the next...
Q12. Suppose you think AppX stock is going to appreciate
substantially in value in the next year. Say the stock’s current
price, So, is $100, and the call option expiring in one year has an
exercise price, X, of $100 and is selling at price, C, of $10. With
$10,000 to invest, you are considering three alternatives:
a) Invest all $10,000 in the stock, buying 100 shares.
b) Invest all $10,000 in 1,000 options (10 contracts).
c) Buy 100 options...
Suppose you think Apple stock is going to appreciate substantially in value in the next year....
Suppose you think Apple stock is going to appreciate
substantially in value in the next year. Say the stock’s current
price, S0, is $200, and a call option expiring
in one year has an exercise price, X, of $200 and is
selling at a price, C, of $20. With $20,000 to invest, you
are considering three alternatives.
a. Invest all $20,000 in the stock, buying 100 shares.
b. Invest all $20,000 in 1,000 options (10 contracts).
c. Buy 100 options...
You believe the price of Freeze Frame Co. stock is going to fall, so you short...
You believe the price of Freeze Frame Co. stock is going to
fall, so you short 650 shares at a price of $63. The initial margin
is 55 percent. Ignore dividends. a. Construct the equity balance
sheet for the original trade. (Input all amounts as positive
values.) b-1. Construct an equity balance sheet for a stock price
of $59 per share. (Input all amounts as positive values.) b-2. What
is your margin? (Do not round intermediate calculations. Enter your
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Problem 20-6 Suppose you think Apple stock is going to appreciate substantially in value in the...
Problem 20-6
Suppose you think Apple stock is going to appreciate
substantially in value in the next year. Say the stock’s current
price, S0, is $40, and a call option expiring
in one year has an exercise price, X, of $40 and is
selling at a price, C, of $15. With $15,000 to invest, you
are considering three alternatives.
a. Invest all $15,000 in the stock, buying 375 shares.
b. Invest all $15,000 in 1,000 options (10 contracts).
c. Buy...
The current price of one share of a certain stock is 100. The price of a...
The current price of one share of a certain stock is 100.
The price of a one-year call option on
the stock with a strike price of 105 is 10.
The risk-free interest rate is 5.884%
and the stock’s dividend yield is 2.02%
Mr. John would like to create a
synthetic long put option on the stock with a strike price of 105
and one year to maturity, using:
Stock
Call option
Cash
Determine the amount of cash and the...
A friend has some reliable information that a certain stock is going to rise from $60...
A friend has some reliable information that a certain stock is
going to rise from $60 to $65 per share over the next year. The
return on the S&P 500 is expected to be 10% and the 90-day
T-bill rate is 2%. If the stock's beta is .9, should you
purchase the stock? (Assume the CAPM is valid)
Yes because it's undervalued.
No because it's overvalued.
You would be indifferent about buying the stock.
Cannot be determined
Any portfolio is mean-variance...
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