Question
In: Finance
Stock XYZ is currently at $65. Consider two July call options with different strike prices, the...
Stock XYZ is currently at $65. Consider two July call options with different strike prices, the July 60 call and the July 70 call. The price of one call option is $3 and the other is $7.
a. Based on the provided information, what is the price of July 60? What is your reasoning?
b. If a speculator has a view that the stock XYZ will increase moderately, which option you will recommend her to buy? What is the reasoning behind your commendation?
c. If the stock XYZ price increases dramatically to $80 just before option expiration, which option will provide a better return, July 60 call or July 70 call? Show your working process.
d. An investor established a spread by buying a July 60 call and simultaneously selling a July 70 call. Under what circumstance the spread will outperform buying a July 60?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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(Leave no cells blank - be certain to enter "0" wherever
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Both a call and a put currently are traded on stock XYZ; both have strike prices...
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Both a call and a put currently are traded on stock XYZ; both have strike prices...
Both a call and a put currently are traded on stock XYZ; both
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Round your answers to 2 decimal places.)
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a.
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$
b.
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More information is needed to determine which option should be
more valuable
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Call 1 – Strike $120: Position Long or
short?__________
Call 2 – Strike $140: Position Long or
short?__________
Call 3 – Strike $160: Position Long or
short?__________
I. Explain
how you can built the spread and write a table that shows the
profit and payoff for each option and...
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