Question
In: Finance
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and...
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7, respectively. They both have 6-month maturity.
(a) How can those two options be used to create a bear spread?
(b) What is the initial investment?
(c) Construct a table that shows the profits and payoffs for the bear spread when the stock price in 6 months is $28, $33 and $38, respectively. The table should look like this:
| Stock Price | Payoff | Profit |
| $28 | ||
| $33 | ||
| $38 |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and...
Suppose that put options on a stock with strike prices $30 and
$35 cost $4 and $7, respectively. How can the options be used to
create (a) a bull spread and (b) a bear spread? For both spreads,
show the profit functions for the intervals defined by the strike
prices, and their graphical representation.
Suppose that put options on a stock with strike prices $30 and $34 cost $4 and...
Suppose that put options on a stock with strike prices $30 and
$34 cost $4 and $6, respectively. How can the options be used to
create (a) a bull spread and (b) a bear spread? Construct a table
that shows the profit and payoff for both spreads.
8. Suppose that put options on a stock with strike prices $33 and $40 cost $2...
8. Suppose that put options on a stock with strike prices $33
and $40 cost $2 and $5, respectively.
a. How can the options be used to create (a) a bull spread and
(b) a bear spread? •
b. Is there a maximum profit or loss for each strategy? If so,
what are they?
c. What are the breakeven points?
d. At what range of future stock prices will the spread make
profit and loss.
Suppose that p1, p2, and p3 are the prices of European put options with strike prices...
Suppose that p1, p2, and p3 are the prices of European put
options with strike prices K1, K2, and K3, respectively, where
K3>K2>K1 and K3-K2=K2-K1. All options have the same maturity.
Show that p2 <= 0.5(p1+p3) (Hint: Consider a portfolio that is
long one option with strike price K1, long one option with strike
price K3, and short two options with strike price K2.)
Suppose that call options on a stock with strike prices $120, $140 and $160 cost $13,...
Suppose that call options on a stock with strike prices
$120, $140 and $160 cost $13, $14 and $18, respectively. How can
the options be used to create a Butterfly spread?
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...
3. Suppose that call options on a stock with strike prices $40 and $45 cost $5...
3. Suppose that call options on a stock with strike prices $40
and $45 cost $5 and $4, respectively. They both have 10-month
maturity. (a) How can those two call options be used to create a
bull spread?
(b) What is the initial investment?
(c) Construct a table showing how payoff and profit varies with
ST in 10 month, for the bull spread you created. The table should
looks like this:
Stock Price
Payoff
Profit
ST < K1
K1 <...
Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. You...
Six-month call options with strike prices of $35 and $40 cost
$6 and $4, respectively. You plan to create a bull spread call
(Buying a call spread) by trading a total of 200 options?
Total amount of credit or debit:
____________________ (Credit or Debit?)
Maximum amount of profit or loss:
_______$300*200_____________ (Profit or Loss?)
Break-even stock price of this spread:
____________________
NB: show complete workings
Nine-month put options with strike prices of $55 and $60 cost $4 and $7, respectively. What...
Nine-month put options with strike prices of $55 and $60 cost $4
and $7, respectively. What is the maximum gain when a bear spread
is created by trading a total of 200 options?
Select one:
a. $100
b. $200
c. $300
d. $400
Consider six-month put options with strike prices of $35 and $40 per share and premiums of...
Consider six-month put options with strike
prices of $35 and $40 per share and premiums of $4 and $6 per
share, respectively. What is the maximum gain per
share when a bear spread is created from the calls? What is the
maximum loss per share when a bear
spread is created from the calls?
Three put options on a stock have the same expiration date and strike prices of $70,...
Three put options on a stock have the same expiration date and
strike prices of $70, $80, and $90 are available at prices of $5,
$7, and $10, respectively. Explain how a butterfly spread can be
created. Construct a table showing the profit from the strategy.
For what range of stock prices would the butterfly spread lead to a
loss? Input your Payoff Table and Draw your payoff diagram :
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