Unformatted text preview: BF 722 Chapter 15 Problems
4. Turn back to Figure 15.1 which lists the prices of various IBM options. Use the data
in the figure to calculate the payoff and the profits for investments in each of the
following July expiration options assuming that the stock price on the expiration date is
a. Call option, X = 90
b. Put option, X = 90
c. Call option, X = 95
d. Put option, X = 95
e. Call option, X = 100
f. Put option, X = 100
6. An investor buys a call at a price of $4.50 with an exercise price of $40. At what stock
price will the investor break even on the purchase of the call?
7. You establish a straddle on Intel using September call and put options with a strike
price of $50. The call premium is $4.25 and the put premium is $5.00.
a. What is the most you can lose on this position?
b. What will be your profit or loss if Intel is selling for $58 in September?
c. At what stock prices will you break even on the straddle?
11. The common stock of the P.U.T.T. Corporation has been trading in a narrow price
range for the past 3 months. You do not know whether it will go up or down, however.
The current price of the stock is $100 per share, the price of a three month call option
with an exercise price of $100 is $10, and a put with the same expiration date and
exercise price costs $7.
a. What would be a simple options strategy to exploit your conviction about the
stock prices future movements?
b. How far would the price have to move in either direction for you to make a
profit on your initial investment?
View Full Document