A. An investor buys for $3 a put with strike price of $35 and sells for...

A. An investor buys for $3 a put with strike price of $35 and sells for $1 a put with a strike price of $30. What is this strategy called? What are the payoffs and profits if the stock price is above $35, below $30, and between $30 and $35?

B. The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $135 per share, and the price of a 3-month call option at an exercise price of $135 is $10.45. I. If the risk-free interest rate is 9% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $135? (The stock pays no dividends.) A straddle would be a simple options strategy to exploit your conviction about the stock price’s future movements. How far would it have to move in either direction for you to make a profit on your initial investment?

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

A trader buys a put on a stock having a certain strike price and buys a...

A trader buys a put on a stock having a certain strike price and buys a put on the same stock having a higher strike price. She also writes (sells) two puts having a strike price in the middle of the other two strike prices. a. Illustrate the resulting payoff pattern (profits for different possible stock prices at the expiration date) this position will give the trader. Explain. b. If you didn’t include the answer to this question...

Question 1: An investor buys a call and a put of apple at the same strike...

Question 1: An investor buys a call and a put of apple at the same strike ($105) and same maturity (6 months from today). The prices for call and put are $3 and $2.5, respectively, and the current price for apple is $105. Three month later, investor make money from selling the call and put at the same time. Assume that there is no transaction cost, what are all possible ranges of the price for the apple stock after 3...

An investor purchases a stock for $56 and a put for $.80 with a strike price...

An investor purchases a stock for $56 and a put for $.80 with a strike price of $50. The investor sells a call for $.80 with a strike price of $66. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign.) Maximum profit $ Maximum loss $

A trader buys 200 put options on a stock with a strike price of $100 when...

A trader buys 200 put options on a stock with a strike price of $100 when the option price is $3 and the stock price is $102. The trader holds the options to the maturity date when the stock price is $107. What is the trader’s net profit or loss?

Problem 3 – Naked Put A put with the strike price of $40 was sold short...

Problem 3 – Naked Put A put with the strike price of $40 was sold short at $4.20 when the price of the underlying stock was $38.00 per share. Draw the gain/loss chart for the naked put.

An investor sells a European call option with strike price of E and maturity T and...

An investor sells a European call option with strike price of E and maturity T and buys a put with the same strike price and maturity on the same underlying asset. a.Create a payoff table of this position at expiration b. Show this payoff on a graph

1. An investor sells a European call option with strike price of E and maturity and...

1. An investor sells a European call option with strike price of E and maturity and buys a put with the same strike price and maturity on the same underlying asset. a. Create a payoff table of this position at expiration b. Show this payoff on a graph

Suppose you purchase 6 put contracts on Testaburger Co. stock. The strike price is $35, and...

Suppose you purchase 6 put contracts on Testaburger Co. stock. The strike price is $35, and the premium is $1.50. If, at expiration, the stock is selling for $31 per share, what are your put options worth? What is your net profit?

An investor sells a European put on a share for $8. The current stock price is...

An investor sells a European put on a share for $8. The current stock price is $57 and the strike price is $60. (a) Under what circumstances will the investor make a profit (have positive profit) on the expiration date? (b) Under what circumstances will the option be exercised on the expiration date? (c) Please draw a diagram showing how the investor’s profit depends on the stock price on the expiration date. To put it another, draw a diagram showing...

A stock currently sells for $32. A 6-month call option with a strike price of $35...

A stock currently sells for $32. A 6-month call option with a strike price of $35 has a price of $2.27. Assuming a 4% continuously compounded risk-free rate and a 6% continuous dividend yield: a)What is the price of the associated put option? b)What are the arbitrage opportunities if the price of the put option was $5? c)What if this price was $6?

Question