hw4_s10 - Exercise 3: You want to purchase 2 puts and 1...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
University of California, Los Angeles Department of Statistics Statistics C183/C283 Instructor: Nicolas Christou Homework 4 Exercise 1: An investor sells a European call on a share for $4. The stock price is $47 and the exercise price is $50. When does the investor make a profit? When will the option be exercised? Draw a diagram showing the investors profit against the price of the stock at expiration. Exercise 2: An investor buys a European put on a share for $3. The stock price is $42 and the exercise price is $40. When does the investor make a profit? When will the option be exercised? Draw a diagram showing the investors profit against the price of the stock at expiration.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Exercise 3: You want to purchase 2 puts and 1 call. The call option costs $5 and the put option costs $6. The exercise price for the call or the put is $50. Plot the prot against the stock price at the expiration date: a. For the 2 puts. b. For the call. c. For the combination of the 2 puts and 1 call. Exercise 4: Consider the following strategy: You write 2 call options (each one with E = $45 ,C = $5) and you buy 1 call option (with E = $40 ,C = $8). Both buying and selling call options have the same expiration date. Plot the prot against the stock price at the expiration date for this strategy....
View Full Document

Ask a homework question - tutors are online