In: Finance

*An investor buys a 6 months maturity strangle on XYZ
stock at $32 call and $27 put, for $2 call and $3
put.*

- What is the long and short strangle payoff, if the stock price at expiration date increased to $42 per share?
- What are the long and short strangle payoffs, if the market price at expiration date decreased to $20 per share?
- What are the long and short strangle payoffs, if the market price at expiration date remained $32 per share?
- What are the breakeven points for XYZ stock strangle strategy?

A Long strangle is a strategy where investor buy a Call and A put at higher and lower prices respectively whereas a short Strangle is a strategy where investor sell the call and put at the respective prices.

Here the Strike price of Call = $32 and its price is $2

and the strike of Put is =$27 with price $3

**when price is $42**

Long Strangle: Here the put option will not be exercised but call option will be

Payoff = (42-32)-2-3 = 5 profit

Short Strangle: Here also the Call option will be exercised but this time we are the seller of the option.

Payoff = -(42-32) + 2 + 3 = -5 loss

**When price is 20$**

Long strangle Payoff : only put will be exercised = (27-20) - 2 -3 = 2 profit

Short strangle Payoff : only Put = -(27-20)-2-3 = -2loss

**When price is 32$**

Long and Short Strangle: this time neither put nor Call will be exercised

option seller will gain = 2+3 = 5

option buyer will loose = -5

Breakeven point is the point of no loss or profit.

in case of Strangle - if the price is 22 or 37 there will be no loss or profit to the buyer in other sense he has just acquired its prices of options.

thanks

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An investor buys 100 shares of a stock, shorts 60 call options
on the stock with strike price of $20 and buys 60 put options on
the stock with strike price of $10. All options are one-year
European options. Draw a diagram illustrating the value of the
investor’s portfolio as a function of the stock price after one
year.

An investor buys 100 shares of a stock, shorts 50 call options
on the stock with strike price of $80 and buys 50 put options on
the stock with strike price of $40. All options are one-year
European options. Draw a diagram illustrating the value of the
investor’s portfolio as a function of the stock price after one
year.

An investor buys a European call on a share for $5. The current
stock price is $102 and the strike price is $100. (a) Under what
circumstances will the investor make a profit (have positive
profit) on the expiration date? (b) Under what circumstances will
the option be exercised on the expiration date? (c) Please draw a
diagram showing how the investor’s profit depends on the stock
price on the expiration date. To put it another, draw a diagram
showing...

An investor buys a stock for $40 per share and simultaneously
sells a call option on the stock with an exercise price of $42 for
a premium of $3 per share. Ignoring the dividends and transaction
costs, what is the maximum profit the writer of this covered call
can earn if the position is held to expiration?

A stock is selling for $32.70. The strike price on a call,
maturing in 6 months, is $35. The possible stock prices at the end
of 6 months are $39.50 and $28.40. If interest rates are 6.0%, what
is the option price? Show work
According the the text book the correct answer is $3.40 but how
do you get to this answer

You sold a 105 call for $8 and sold a 95 put for $6
(Short Strangle). Ignoring transaction costs, your maximum gains,
losses and break-even points are respectively:
Question 2 options:
1)
14; unlimited; [81, 119]
2)
8; unlimited; [85, 114]
3)
14; -14; [95, 105]
4)
unlimited; -14; [92, 114]
-----------------------------------------------------------------------------------------------------
Question 4
You bought 150 call for $6 and bought a 150 put for $5
(Long straddle). Ignoring transaction costs, your maximum gains,
losses and break-even points are...

An investor buys 6% semi-annual coupon paying bond with six
years to maturity and $1000 par value at $906.15.The bond has a YTM
of 8%. For all the calculations ,keep four digits after the decimal
place
b)Calculate the bond's modified duration
c)If the interest rate increases by 20 basis points, what is the
approximate value of the bond by using modified duration?
d)What is the real value of the bond after the change (using the
bond pricing formula )?

A stock currently sells for $32. A 6-month call option with a
strike price of $35 has a price of $2.27. Assuming a 4%
continuously compounded risk-free rate and a 6% continuous dividend
yield:
a)What is the price of the associated put option?
b)What are the arbitrage opportunities if the price of the put
option was $5?
c)What if this price was $6?

A stock currently sells for $32. A 6-month call option with a
strike price of $35 has a price of $2.27. The price of the put
option that satisfies the put-call-parity is $5.5229.Assuming a 4%
continuously compounded risk-free rate and a 6% continuous dividend
yield:
a) What are the arbitrage opportunities if the price of the call
option in question 5 was $2?
b)What if this price was $3?

Question 1: An investor buys a call and a put of apple at the
same strike ($105) and same maturity (6 months from today). The
prices for call and put are $3 and $2.5, respectively, and the
current price for apple is $105.
Three month later, investor make money from selling the call and
put at the same time. Assume that there is no transaction cost,
what are all possible ranges of the price for the apple stock after
3...

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