Three six-month call options are traded on Digital Organics stock: How would you make money by...

Three six-month call options are traded on Digital Organics stock:

How would you make money by trading in Digital Organics options?

Exercise Price	Call Option Price
$90	$5
$100	$11
$110	$15

Solutions

Expert Solution

1)	In case of call options the price of option decreases with the increase in exercise price
2)	Because when the exercise price increases the demand for the call option will fall accordingly
	the price of the option should fall.
3)	In the given question the price of the Call option is $5 when the exercise price is $90. That means the
	the option holder can buy the underlying at $90.
4)	when the exercise price increased to $100 the option price was $ 11 and similarly when the
	exercise price was $110 the option price became $15.
5)	here we get an opportunity to have arbitrage gain .
a.	Write as many as possible Call options with Exercise price $110 and then $100
b.	Buy Call Options with Exercise price $90 to settle the call Options written.
c.	Gain shall be the differentials of exercise price and differentials of option prices

jeff jeffy answered 10 months ago

Next > < Previous

Related Solutions

Suppose that you traded the following options on Facebook’s stock: a. Sold 1 call option with...

Suppose that you traded the following options on Facebook’s stock: a. Sold 1 call option with an exercise price of $250 at the price of $40; b. Sold 1 put option with an exercise price of $250 at the price of $30; and c. Bought 1 call option with an exercise price of $300 at the price of $22. Also, suppose that: i. All options are European; ii. The options expire one year from now; and iii. As usual, each...

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

Six-month call options with strike prices of $20 and $26 cost $4 and $2, respectively. You...

Six-month call options with strike prices of $20 and $26 cost $4 and $2, respectively. You plan to create a bull spread call (Buying a call spread) by trading a total of 100 options. Answer the following questions.? Total amount of credit or debit: Maximum amount of loss: Maximum amount of profit: Break-even stock price of this spread: Six-month put options with strike prices of $40 and $45 cost $3 and $5, respectively. You plan to create a bull spread...

The price of a stock is $36. You can buy a six-month call option with $33...

The price of a stock is $36. You can buy a six-month call option with $33 exercise price for $3.2 or a six-month put option with $33 exercise price for $1.2. (a) What is the intrinsic value of the call option? (b) What is the intrinsic value of the put option? (c) What is the time premium paid for the call option? (d) What is the time premium paid for the put option? (e) If the price of the stock...

You buy a share of BP stock for 150, and a six-month call option at 160...

You buy a share of BP stock for 150, and a six-month call option at 160 for 9.83. You sell a six month put option at 150 for 11.12. You hold your portfolio until the expiration date. On the expiration date you cash out your portfolio. Graph the profits of your strategy as the price of BP stock at the expiration date goes from 125 to 200. Profits equal the amount you receive at the expiration date for cashing out...

Suppose that you buy a six-month call option on stock Y with an exercise price of...

Suppose that you buy a six-month call option on stock Y with an exercise price of $80 and sell a six-month call option on Y with an exercise price of $120. Draw a position diagram showing the payoffs when the options expire. (Hint: Determine and then add up the values of the two options given different share prices.)

ABC stock is being traded at $115 today. Consider European put and call options with an...

ABC stock is being traded at $115 today. Consider European put and call options with an exercise price of $110. The option expires in 91 days and the volatility is 0.50. The risk-free rate (continuously compounded) is 2.5%. Use actual/365 day count method. A) Calculate the values of the put and call options. Assume there will be no dividend before the option expires. B) Calculate the values of the put and call options, but assume now the continously compounded dividend...

Red Hat stock sells for 93. Three-month call options on Red Hat at 88 sell for...

Red Hat stock sells for 93. Three-month call options on Red Hat at 88 sell for 6.616. Three-month put options at 88 sell for 4.177. You can go long or short 175 units of any or all of these three assets. The interest rate is 2% per year. A: Explain your arbitrage strategy. How much money will you make? B: Now assume the price of Red Hat stock is 88. Explain your arbitrage strategy. How much money will you make?

Options Homework Graph a call option. Make sure you put the price of the stock on the...

Options Homework Graph a call option. Make sure you put the price of the stock on the x axis and the change in wealth on the y axis. There is no such thing as a negative stock price so the y axis does not split the x axis into positive and negative. Here are the variables to use: Stock price is currently at $13; stock strike price is $18; the premium is $20. Make sure you label the change in wealth for the buyer and...

3. A six-month call option is the right to buy stock at $30. Currently, the stock...

3. A six-month call option is the right to buy stock at $30. Currently, the stock is selling for $32 and the call is selling for $3. You are considering buying 100 shares of the stock ($3,000) or one call option ($300). a) If the price of the stock rises to $39 within six months, what would be the profits or losses on each position? What would be the percentage gains or losses? b) If the price of the stock...

Subjects