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EXERCISE #2: Draw a payoff and profit diagram for a long straddle: we are buying a...
EXERCISE #2: Draw a payoff and profit diagram for a long straddle: we are buying a 50 put for 6 and a 50 call for 4. x axis has stock prices (35,40,45....) in intervals of 5 and y axis has dollar amounts
Solutions
Expert Solution
Long Straddle: Person holds a call option, a put option on same underlying stock, at same strike price, at same maturity.
| Particulars | Amount |
| Strike Price | $ 50.00 |
| Value of Call | $ 4.00 |
| Value of Put | $ 6.00 |
| Position | Holder |
Payoff Calculation:
| FSP | Call Option | Call Option | Call Option | Put Option | Put Option | Put Option | Straddle Payoff | Position Value ( Vc + Vp ) | Payoff at expiration |
| Vc | Premium Paid | Payoff | Vp | Premium Paid | Payoff | ||||
| $ 35.00 | $ - | $ 4.00 | $ -4.00 | $ 15.00 | $ 6.00 | $ 9.00 | $ 5.00 | $ 15.00 | $ 5.00 |
| $ 40.00 | $ - | $ 4.00 | $ -4.00 | $ 10.00 | $ 6.00 | $ 4.00 | $ - | $ 10.00 | $ - |
| $ 45.00 | $ - | $ 4.00 | $ -4.00 | $ 5.00 | $ 6.00 | $ -1.00 | $ -5.00 | $ 5.00 | $ -5.00 |
Payoff Diagram:
jeff jeffy answered 2 years agoRelated Solutions
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Given that a 950-strike call has a premium of $120.405 and a 950-strike put has a premium of $51.777 and the 6-month interest rate is 2%. Suppose you buy the S&R index for $1000 and buy a 950-strike put. What are the profit and payoff for this position. Is this the same profit and payoff as investing $931.37 in a zero-coupon bonds and buying a 950-strike call.
1 Draw the payoff picture at expiration for a long position in a call option that...
1 Draw the payoff picture at expiration for a long position in a
call option that has a premium of $1.75 and a strike price of
$40.
1a Draw the payoff picture for a short position in the call
option given in Problem 2.
1a) Draw the payoff picture at expiration for a long position in a put option that...
1a) Draw the payoff picture at expiration for a long position in
a put option that has a premium of $3.50 and a strike price of
$35.
Draw the payoff picture for a short position in the put option
given in Problem 1a
Draw the payoff picture at expiration for a long position in a put option that has...
Draw the payoff picture at expiration for a long position in a
put option that has a premium of $3.50 and a strike price of
$60.
1) draw the payoff picture at expiration for a long position in a call option that...
1) draw the payoff picture at expiration for a long position in
a call option that has a premium of $1.25 and a strike price of
$50.
2) draw the payoff picture for a short position in the call option
given in problem 1.
Determine the profit table and draw the profit diagram for each of the following portfolios. For...
Determine the profit table and draw the profit diagram for each
of the following portfolios. For what range of values is the
portfolio profitable and what is the maximum loss or profit? Assume
that all options have a maturity of one year.
a. Long one European put option with strike price K=$90 which
costs $6.
b. Long one European call option with strike price K=$100 which
costs $4.
c. Long one share and short two European call options with
strike...
Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise...
Reska, Inc., has constructed a long euro straddle. A call option
on euros with an exercise price of $1.10 has a premium of $.025 per
unit. A euro put option has a premium of $.017 per unit. How do you
calculate these answers for calls and puts?
Value of Euro at Option Expiration
$.90
$1.05
$1.50
Call
-$.25
-$.025
+$3.75
Put
+$1.83
+$0.33
-$.017
Net
+$.158
+$0.08
+$.358
Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise...
Reska, Inc., has constructed a long euro straddle. A call option
on euros with an exercise price of $1.10 has a premium of $.02 per
unit. A euro put option has a premium of $.012 per unit. Some
possible euro values at option expiration are shown in the
following table.
Complete the worksheet and determine the net profit per unit to
Reska Inc. for each possible future spot rate.
Value of Euro at Option Expiration
$0.90
$1.05
$1.50
$2.00
Call...
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