option_strategies_handout

option_strategies_handout - BASIC OPTION STRATEGIES Example...

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

View Full Document Right Arrow Icon
Example 1 : ABC trades at $97.50. ABC calls with an exercise price of $95 trade at $6.25 and ABC puts with an exercise price of $93 trade for $0.90. What are the intrinsic values and time values for these options? Intrinsic Value Time Value ABC 95 Calls P-X = (97.50 – 95)=$2.50 Vc – IV = (6.25 – 2.50)=$3.75 ABC 93 Puts X-P = $0 Vp – IV = $0.90 Example 2 : An investor buys a call option with a strike price of $35. The option price is $6.50. Draw a payoff table and a profit/loss diagram. What is the breakeven price? What is the maximum gain on this position? What is the maximum loss? If at maturity the stock price is $43, what is the total profit/loss? Price of stock @ expiration 25 30 35 40 45 Cost of Call Gain/loss Net payoff Example 3 : An investor writes a call option with a strike price of $35. The option price is $6.50. Draw a payoff table and a profit/loss diagram. What is the breakeven price? What is the maximum gain on this position? What is the maximum loss? If at maturity the stock price is $43, what is the total profit/loss? Price of stock @ expiration 25 30 35 40 45 Cost of Call Gain/loss Net payoff Example 4 : An investor buys a put option with a strike price of $20. The option price is $4.00. Draw a payoff table and a profit/loss diagram. What is the breakeven price? What is the maximum gain on this position? What is the maximum loss? If at maturity the stock price is $22, what is the total profit/loss? Price of stock
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/07/2012 for the course FIN 3361 taught by Professor Mishra during the Spring '11 term at Dalhousie.

Page1 / 11

option_strategies_handout - BASIC OPTION STRATEGIES Example...

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

View Full Document Right Arrow Icon
Ask a homework question - tutors are online