Question
In: Finance
A put option with a strike price of $65 costs $8. A put option with a...
A put option with a strike price of $65 costs $8. A put option with a strike price of $75 costs $15.
1) How can a bull spread be created?
2) With the bull spread created above, what is the profit/loss if the stock price is $70?
3) With the bull spread created above, when would the investor gain a positive profit?
Solutions
Expert Solution
1) Bull Put Spread: Bull put spreads can be implemented by selling a higher strike ITM put option and buying a lower striking OTM put option on the same underlying stock with the same expiration date. SInce Spot is not given any of the Put option can be either OTM or ITM.
2. Selling ITM option (X-75) and Buying OTM option (X-65). With spot as 70, put @ 65 is OTM and Put @ 75(sold) ITM by $ 5. Net Prem =7. Profit =7-5=2.
3.when the stocke price is above 68, investor will earn a positive profit. Net profit out of premiums=7.
jeff jeffy answered 2 years agoRelated Solutions
A put option with a strike price of $65 costs $8. A put option with a...
A put option with a strike price of $65 costs $8. A put option
with a strike price of $75 costs $15. 1) How can a bull spread be
created? 2) With the bull spread created above, what is the
profit/loss if the stock price is $70? 3) With the bull spread
created above, when would the investor gain a positive profit?
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...
Given the following: Call Option: strike price = $100, costs $4 Put Option: strike price =...
Given the following:
Call Option: strike price = $100, costs $4
Put Option: strike price = $90, costs $6
How can a strangle be created from these 2 options? What are the
profit patterns from this? Show using excel.
A call option with a strike price of $50 costs $2. A put option with a...
A call option with a strike price of $50 costs $2. A put option
with a strike price of $45 costs $3. Explain how a strangle can be
created from these two options. Construct a table that shows the
payoff and profits of the strangle.
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.
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...
Suppose that a European put option has a strike price of $150 per share, costs $8...
Suppose that a European put option has a strike price of $150
per share, costs $8 per share, and is held until maturity.
a) Under what circumstances will the seller of the option make a
profit?
b) Under what circumstances will the buyer exercise the
option?
c) Draw a diagram (or a table) illustrating how the profit from
a short position in the
option depends on the stock price at the maturity of the
option.
Suppose that a European put option has a strike price of $150 per share, costs $8...
Suppose that a European put option has a strike price of $150
per share, costs $8 per share, and is held until maturity.
a) Under what circumstances will the seller of the option make a
profit?
b) Under what circumstances will the buyer exercise the
option?
c) Draw a diagram (or a table) illustrating how the profit from
a short position in the option depends on the stock price at the
maturity of the option.
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)
Calculate the value of an 8-month European put option on a currency with a strike price...
Calculate the value of an 8-month European put option on a
currency with a strike price of 0.60. The current exchange rate is
0.62, the volatility of the exchange rate is 14%, the domestic and
foreign risk-free interest rates are 3% and 5% respectively.
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