HW9 - Value of Stock Your Net Profit (Loss) 160 145 130 117...

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Purdue University Krannert School of Business MGMT 411: INVESTMENTS Assignment #9, Due: Nov 17 No late assignments will be accepted. 1. XYZ stock is trading $50. You anticipate a big move either up or down over the next six weeks with a possible increase in volatility. You decide to buy one June 50 strike call at $3.20 and one June 50 strike put at $3.00. Both options are European. Suppose that these are possible outcomes at expiration: XYZ Price Value of Call Option Value of Put Option Your Net Profit (Loss) 60 55 50 45 40 a) Fill in the empty cells in the table above. b) Briefly describe the point of this strategy. 2. XYZ is at $117. You own 100 shares and want to hold on until 2012 for tax reasons, and willing to pay a cost for insurance. You are bullish on XYZ, but nervous about unseen events over the next couple of years. You decide to buy one XYZ January 2012 110 put for 13 or $1,300.00. Suppose that these are possible outcomes at expiration: XYZ Price Value of Put Option
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Unformatted text preview: Value of Stock Your Net Profit (Loss) 160 145 130 117 110 100 a) Fill in the empty cells in the table above. b) Briefly describe the point of this strategy. 3. CBOE's Euro Index, EOR, is currently at a level of 94. The threat of political dissent among the members of the European Union makes you uncertain of the direction of the market. You are unsure of the direction for the market in the short term, but believe it will be volatile. You want to take a position that may profit if the EOR moves significantly up or down. You know that the following options on EOR are available: Option Premium Strike Expiration call 4 93.50 June, 2010 put 3.50 93.50 June, 2010 What type of strategy could you implement using these options that will benefit from significant movements in the EOR between now and June, 2010? Present a table that shows the payoffs from the strategy depending on what happens to the level of EOR at expiration....
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This note was uploaded on 02/06/2012 for the course MGMT 411 taught by Professor Clarke during the Spring '09 term at Purdue University-West Lafayette.

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