Question
In: Finance
Suppose that an investor is analysing one European call option on an underlying stock with the...
Suppose that an investor is analysing one European call option on an underlying stock with the following characteristics: Option price is $5, the current stock price is $95, the strike price = $100, and the expiry date of the option is in 2 months. Which of the following statements is incorrect?
Select one:
a. The break-even price for taking a long position in this call option is $100.
b. Buying the call option will give the investor some advantages over buying the underlying stock
c. The maximum profit for taking a long position in this call option is unlimited while the maximum loss for taking a long position in this call option is $5.
d. The investors should buy the call option if he expects the price of the underlying stock in the next two months will be more than $100.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose that an investor has wrote a six month European call option on Dawn stock, a...
Suppose that an investor has wrote a six month European call
option on Dawn stock, a hypothetical company, with strike price of
$40 for a price of $2.what happens to the option price of
volatility on Dawns stock decreases?
1.option price will remain unaffected
2.option price will be more than 1.5$
3.option price will be less than 2$
4.none of the above
Suppose that a 6-month European call A option on a stock with a strike price of...
Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
(a) Construct a butterfly spread with the two kinds of options....
Suppose that a 6-month European call A option on a stock with a strike price of...
Suppose that a 6-month European call A option on a stock with
a strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
(a) Construct a butterfly spread with the two kinds of
options....
Derive a formula for the volga of a European call option on a no-dividend underlying asset...
Derive a formula for the volga of a European call option on a
no-dividend underlying asset in the Black-Scholes model.
Assume the same investor decided to purchase a European call option on stock ABC. Further assume...
Assume the same investor decided to purchase a European call
option on stock ABC. Further assume that the current price of the
stock is $130. The investor paid $10 for the call with the strike
price at $155.
(A)If the stock price goes up to $160, what is the payoff to the
investor? (B) Further assumes that the investor also decided to
sell a European put option on the same underlying with the same
strike price of $155 and option...
) Consider a one-year European call option on a stock when the stock price is $30,...
) Consider a one-year European call option on a stock when the
stock price is $30, the strike price is $30, the risk-free rate is
5%, and the volatility is 25% per annum.
(a) Use the DerivaGem software to calculate the price, delta,
gamma, vega, theta, and rho of the option.
(b) Verify that delta is correct by changing the stock price to
$30.1 and recomputing the option price. Verify that gamma is
correct by recomputing the delta for the...
Suppose that you are holding a European call option on General Motors stock that expires in...
Suppose that you are holding a European call option on General
Motors stock that expires in 5 years. The option is currently
at-the-money. GM's current stock price is $42.50 and the current
yield on a 5-year Treasury bond is 2%. The standard deviation of
returns on GM stock is 25%. For the purposes of this series of
questions, you should assume that GM does not pay dividends.
Please use the field below to provide work associated with your
answer to...
A European call option on Visa stock costs $85.36, while a European put option on the...
A European call option on Visa stock costs $85.36, while a
European put option on the same stock costs $31. Both options
expire in 0.5 years and have a strike price of 800. Google does not
pay dividends and its stock price is $850.
What should be the risk-ree rate (effective annual rate)?
Calculate the call option value at the end of one period for a European call option...
Calculate the call
option value at the end of one period for a European call option
with the following terms:
The current price of the
underlying asset = $80.
The strike price = $75
The one period, risk-free rate
= 10%
The price of the asset can go
up or down 10% at the end of one period.
What is the fundamental or intrinsic value?
What is the time premium?
Consider a European call option and a put option on a stock each with a strike...
Consider a European call option and a put option on a stock each
with a strike price of K = $22 and each expires in six months. The
price of call is C = $3 and the price of put is P = $4. The risk
free interest rate is 10% per annum and current stock price is S0 =
$20. Show how to create an arbitrage strategy and calculate the
arbitrage traders profit.
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