sol - Solutions to Exercises for OPTION Answers to...

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260 Answers to Questions and Problems 1. Consider a call and a put option on the same underlying stock. Both options have an exercise price of $75. The call costs $5, and the put costs $4. If you buy both the call and the put, what is the position called? Complete the following table showing the value and profits and losses at expiration. Solutions to Exercises for OPTION! Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $50 25.00 16.00 $65 10.00 1.00 $70 5.00 2 4.00 $75 0.00 2 9.00 $80 5.00 2 4.00 $85 10.00 1.00 $90 15.00 6.00 The position is called a “straddle.” 2. Consider a call and a put on the same underlying stock. Both options have the same exercise price of $50. The stock currently sells for $50. If you buy the stock, sell the put for $3, and buy the call for $4, complete the fol- lowing table showing the value of the entire position and the profits and losses on the position at expiration. Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $35 20 2 31 $40 30 2 21 $45 40 2 11 $50 50 2 1 $55 60 9 $60 70 19 $65 80 29 3. Consider two calls on the same underlying stock. The calls have the same expiration date and exercise prices of $80 and $90. If the calls cost $12 and $4, respectively, complete the following table showing the value of and profits on a bull spread at expiration using these two calls.
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Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $70 0 8 $75 0 8 $80 0 8 $85 2 53 $90 2 10 2 2 $95 2 2 2 $100 2 2 2 $105 2 2 2 $110 2 2 2 ANSWERS TO QUESTIONS AND PROBLEMS 261 Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $70 0 2 8 $75 0 2 8 $80 0 2 8 $85 5 2 3 $90 2 $95 2 $100 2 $105 2 2 4. Consider two puts on the same underlying stock. The puts have the same expiration date and exercise prices of $80 and $90. If the puts cost $4 and $12, respectively, complete the following table showing the value of and profits on a bull spread at expiration using these two puts. Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $70 2 2 2 $75 2 2 2 $80 2 2 2 $85 2 $90 0 8 $95 0 8 $100 0 8 $105 0 8 0 8 5. Consider two calls on the same underlying stock. The calls have the same expiration date and exercise prices of $80 and $90. If the calls cost $12 and $4, respectively, complete the following table showing the value of and profits on a bear spread at expiration using these two calls. 6. Consider two puts on the same underlying stock. The puts have the same expiration date and exercise prices of $80 and $90. If the puts cost $4 and $12, respectively, complete the following table showing the value of and profits on a bear spread at expiration using these two puts. Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $70 2 $75 2 $80 2
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Stock Price at Expiration Position Value at Expiration Position Profit at Expiration $20 0 0 $25 0 0 $30 0 0 $35 5 5 $40 0 0 $45 0 0 $50 0 0 262 SOLUTIONS TO EXERCISES FOR OPTION!
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sol - Solutions to Exercises for OPTION Answers to...

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