7. (20 pts) You expect that the stock price will go significantly down from the strike...

7. (20 pts) You expect that the stock price will go significantly down from the strike prices offered in the market. Name four spread strategies one can use in this scenario. For each strategy provide a clear description (for example, long a European call option with strike $K for a fee of $f, etc), the payoff function and the payoff diagram. Explain the differences between these strategies (which one has a higher potential profit, which one is pricier, etc).

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You expect that the stock price will go significantly down from the strike prices offered in...

You expect that the stock price will go significantly down from the strike prices offered in the market. Name four spread strategies one can use in this scenario. For each strategy provide a clear description (for example, long a European call option with strike $K for a fee of $f, etc), the payoff function and the payoff diagram. Explain the differences between these strategies (which one has a higher potential profit, which one is pricier, etc).

A stock is currently trading at $20. The call option at $20 strike price for September...

A stock is currently trading at $20. The call option at $20 strike price for September 2020 costs $1 per share while the September put at $20 strike price costs $.50 per share. a) What’s a straddle strategy for this stock; b) Explain the risk and reward as stock price goes up to more than $22 ; c) Explain the risk and reward as stock price trades below $21.

A put option on a stock expires in 7 months with a strike price of 150....

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Cisco stock price is $20 per share now. Investor A expects the stock price to go...

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A stock price is currently $20. It is known that in three months it will go...

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A call with a strike price of $80 costs $7. A put with the same strike...

A call with a strike price of $80 costs $7. A put with the same strike price and expiration date costs $5. Construct a table that shows the profit from a straddle. A straddle is created by buying both the call and the put. For what range of stock prices would the straddle lead to a loss?

The current price of a non-dividend-paying stock is $32.59 and you expect the stock price to...

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The current price of a non-dividend-paying stock is $266.72 and you expect the stock price to be either $293.39 or $242.47 after 0.5 years. A European call option on the stock has a strike price of $270 and expires in 0.5 years. The risk-free rate is 3% (EAR). Part 1. What is the hedge ratio (delta)? Part 2. How much money do you need to invest in riskless bonds to create a portfolio that replicates the payoff from one call...

The current price of a non-dividend-paying stock is $100 and you expect the stock price to...

The current price of a non-dividend-paying stock is $100 and you expect the stock price to be either $180 or $40 after 0.5 years. A European call option on the stock has a strike price of $121 and expires in 0.5 years. The risk-free rate is 8% (EAR). Part 1. What is the hedge ratio (delta)? Part 2. How much money do you need to borrow to create a portfolio that replicates the payoff from one call option? Part 3. What...

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