Question
In: Finance
1-month European call options for Apple (AAPL) with a strike price of $235/share sell for $1.50/share...
1-month European call options for Apple (AAPL) with a strike price of $235/share sell for $1.50/share when Apple stock trades at $225/share. Each call contract is for 100 shares of Apple stock.
a. If Apple share price at maturity ends up being $230/share what is the payoff and profit for the long call buyer?
b. If Apple share price at maturity ends up being $230/share what is the payoff and profit for the short call seller?
c. What is the profit break-even stock price for the long call buyer?
d. Draw a diagram showing the payoff and profit for the investor under different stock prices at maturity.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
1-month European put option for Apple (AAPL) with a strike price of $235/share sells for $10/share...
1-month European put option for Apple (AAPL) with a strike price
of $235/share sells for $10/share when Apple stock trades at
$225/share. Each contract is for 100 shares of Apple stock. Draw a
diagram showing the payoff and profit for the investor under
different stock prices at maturity. What is the profit break-even
stock price for the investor? If Apple share prices at maturity
ends up being $230/share how much profit/loss will the investor
make/incur?
a. If Apple share price...
The current price of a stock is $40, and two-month European call options with a strike...
The current price of a stock is $40, and two-month European call
options with a strike price of $43 currently sell for $5. An
investor who feels that the price of the stock will increase is
trying to decide between two strategies: buying 100 shares or
buying 800 call options (8 contracts). Both strategies involve an
investment of $4,000.
a. Which strategy will earn more profits if the stock increases to
$42?
b. How high does the stock price have...
1-month call and put price for European options at strike 108 are 0.29 and 1.70, respectively....
1-month call and put price for European options at strike 108
are 0.29 and 1.70, respectively. The prevailing short-term interest
rate is 2% per year.
Find the current price of the stock using the put-call
parity.
Suppose another set of call and put options on the same stock
at the strike price of 106.5 is selling for 0.71 and 0.23,
respectively. Is there any arbitrage opportunity at 106.5 strike
price? Answer this by finding the amount of arbitrage profit
available...
The current price of XYZ stock is $50, and two-month European call options with a strike...
The current price of XYZ stock is $50, and two-month European
call options with a strike price of $51 currently sell for $10. As
a financial analyst at Merrill Lynch, you are considering two
trading strategies regarding stocks and options. Strategy A
involves buying 100 shares and Strategy B includes buying 500 call
options. Both strategies involve an investment of $5,000.
a. How much is the profit (loss) for strategy A if the stock
closes at $65? (sample answer: $100.25...
The following options are available: 3-month European call with a strike price of $20 that is priced at $1.00
The following options are available:3-month European call with a strike price of $20 that is priced at $1.003-month European put with a strike price of $20 that is priced at $4.003-month call with a strike price of $25 that is priced at $8.503-month put with a strike price of $25 that is priced at $7.00Currently, the price of the underlying stock is $25.501)Identify all arbitrage trades, not considering interest.2)For each set of trades you will make, please describe the trades...
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....
Consider the following European plain vanilla options: (1) a call with strike price K = 160,...
Consider the following European plain vanilla options: (1) a
call with strike price K = 160, (2)
a put with strike price K = 160, (3) a call with strike price Kc =
165, and (4) a put with strike
price Kp = 155. All options have the same non-dividend-paying
underlying stock and mature
after one year. Assuming current stock price 160, stock price
volatility 22%, and continuously compounded
risk-free interest rate 0.49%.
Assume a long position in options (1)...
Consider the following European plain vanilla options: (1) a call with strike price K = 160,...
Consider the following European plain vanilla options: (1) a
call with strike price K = 160, (2)
a put with strike price K = 160, (3) a call with strike price Kc =
165, and (4) a put with strike
price Kp = 155. All options have the same non-dividend-paying
underlying stock and mature
after one year.
a) Assuming current stock price 160, stock price volatility 22%,
and continuously compounded
risk-free interest rate 0.49%, compute the prices of options
(1)–(4)...
A one-month European call option on Bitcoin is with the strike price of $8,505, $8,705, and...
A one-month European call option on Bitcoin is with the strike
price of $8,505, $8,705, and $8,905 are trading at $600, $500, and
$415, respectively. An investor implements a butterfly spread
(i.e., she buys one call with the strike price of $8,505, sells two
calls with the strike price of $8,705, and buys one call with the
strike price of $8,905. If at the maturity, the Bitcoin price is
$8,605, what is the investor's profit?
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