{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 1 solutions

# Chapter 1 solutions - Problem 1.15 It is May and a trader...

This preview shows pages 1–2. Sign up to view the full content.

Problem 1.15. It is May and a trader writes a September call option with a strike price of \$20. The stock price is \$18, and the option price is \$2. Describe the investor’s cash flows if the option is held until September and the stock price is \$25 at this time. The trader has an inflow of \$2 in May and an outflow of \$5 in September. The \$2 is the cash received from the sale of the option. The \$5 is the result of the option being exercised. The investor has to buy the stock for \$25 in September and sell it to the purchaser of the option for \$20. Problem 1.16. An investor writes a December put option with a strike price of \$30. The price of the option is \$4. Under what circumstances does the investor make a gain? The investor makes a gain if the price of the stock is above \$26 at the time of exercise. (This ignores the time value of money.) Problem 1.25 In March, a US investor instructs a broker to sell one July put option contract on a stock. The stock price is \$42 and the strike price is \$40. The option price is \$3. Explain what the investor

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

Chapter 1 solutions - Problem 1.15 It is May and a trader...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online