1. What is the profit of a call option that is “At The Money” atexpiration?...

1. What is the profit of a call option that is “At The Money” at expiration?

2. What is the profit of a short put option that is “At The Money” at expiration?

3. What is your maximum gain if you’re short a call option and long the corresponding put option? (Same underlying asset, same strike price, same expiration date)

Expert Solution

Answer 1)

Profit of a call option "at the money" will be 0. As there is no time value of money and strike Price and stock price are same.

Answer 2)

profit of a short put option that is “At The Money” at expiration will be premium received as there is no time value of money and strike Price and stock price are same.

Answer 3)

Maximum gain from put Option will be if Price fall to 0, then the strike price can be the max. profit.

Maximum gain from the Shorting of call when prices fall to 0 will be Premium received.

Max profit = Strike Price + Premium on Call

jeff jeffy answered 2 years ago

1. What's the profit of a call option that is “At The Money” at expiration?

1. What's the profit of a call option that is “At The Money” at expiration? (Simplify the answer as much as possible)2. What's the profit of a short put option that is “At The Money” at expiration? (Simplify the answer as much as possible)3. What's your maximum gain if you’re short a call option and long the corresponding put option? (Same underlying asset, same strike price, same expiration date) (Simplify the answer as much as possible)

What would happen to the premium for an at-the-money call option, an at-the-money put option, and...

What would happen to the premium for an at-the-money call option, an at-the-money put option, and an in-the-money call option on a stock if: a. the stock's price jumps 15%? b. a month passes with very little change to the stock's price c. the firm issues an earnings report with no impact on the spot price d. there is high volatility for the stock

What is meant by an option that is in-the-money? Graph this for both call and put...

What is meant by an option that is in-the-money? Graph this for both call and put options (identify x and y axis clearly).

Classify the following options as in-the-money (ITM), at-the-money (ATM) or out-the-money (OTM): a) Call option, strike...

Classify the following options as in-the-money (ITM), at-the-money (ATM) or out-the-money (OTM): a) Call option, strike price $50, current price of the underlying asset $55. b) Put option, strike price $55, current price of the underlying asset $50. c) Call option, strike price $70, intrinsic value $5 d) Put option, strike price $40, premium $3, time value $3.

Use the Black-Scholes option pricing model to price a one-year at the money call option on...

Use the Black-Scholes option pricing model to price a one-year at the money call option on a stock that is trading at $50 per share, Rf is 5%, annual volatility is 25%. REMEMBER TO USE THE NORMAL PROBABILITY DOCUMENT posted on moodle. You are not allowed to use Excel, you can only use your financial calculator. Show all your work, including intermediate steps. Simply writing the final answer will not get credit, even if the answer is correct. a) What...

Stock trades at $50. An at the money call option trades at $4. The maturity of...

Stock trades at $50. An at the money call option trades at $4. The maturity of the option is two years. The present value of the strike price over the two years is $45. The stock pays a dividend of 3 dollars in one year and no other dividends prior to expiration. The present value of the dividend is $2. The price of the European call option is $5. The price of the European put is $1.0. Construct a strategy...

The price of a one-year at the money call option is 7.07. The underlying asset is...

The price of a one-year at the money call option is 7.07. The underlying asset is a stock that pays dividends at a rate of 4%. The stock’s volatility is 30% and the current risk-free interest rate is 10%. The call’s Delta is equal to .611831. Determine the current price of the stock.

5. Consider an at-the-money call option that is two weeks to maturity on a stock with...

5. Consider an at-the-money call option that is two weeks to maturity on a stock with a local standard deviation of 40%/year. Assume the stock is selling for $50 and the risk-free rate is 5%/year straight interest. Write your answer below – Show all calculations. 5-1. What are the variables S, B, σ, and T to be used in the option formula? 5-2. What is the call price from the approximate formula? 5-3. What is the corresponding European put price?

What are the deltas of a call option and a put option with the following characteristics?...

What are the deltas of a call option and a put option with the following characteristics? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) Stock price = $56 Exercise price = $55 Risk-free rate = 4.10% per year, compounded continuously Maturity = 9 months Standard deviation = 45% per year Call option delta Put option delta

What are the prices of a call option and a put option with the following characteristics?...

What are the prices of a call option and a put option with the following characteristics? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Stock price = $80 Exercise price = $75 Risk-free rate = 4.70% per year, compounded continuously Maturity = 4 months Standard deviation = 65% per year Call price $ Put price $

Question