hw4_s10

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

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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.
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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....
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