1. What is the profit of a call option with a strike price of $190 and a stock price at expiration equal to $200 if the call premium was initially $3.50?
2. When buying a protective put, your payoff will always be equal to:
3. What is the time value of a call option costing $6 with a strike price of $32 and a spot price of $36?
4. What is the risk-free arbitrage profit available if a one-year option pair has a strike price of $60, a spot price of $62, a call premium of $5, a put premium of $2, and a risk-free rate of 4%?
5. What is your risk-free arbitrage profit available if a six-month option pair has a strike price of $150, a spot price of $147, a call premium of $10, a put premium of $11, and the risk-free rate is 6%?
6. What should you do if you come across a 2-year option pair with a strike price of $100, a spot price of $100, a call premium of $22, a put premium of $15, and the risk-free rate is 5%?
7. What option strategy would be best if you believe there is a good chance for either large gains or large losses in the underlying stock over the next 6 months? Justify your answer.
8. Consider the following: S0 = 100; X = 110; rf = 10%; The two possibilities for ST are 130 and 80. What is the hedge ratio of a put option?
9. Consider the question above: Form a portfolio of 3 shares of stock and 5 put options. What is the nonrandom payoff to this portfolio?
10. Consider the above: What is the present value of the portfolio?
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