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Various questions relating to investments and options

Please see the attached questions.

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Each contract is for 100 shares
For a call option, buyer will have to pay 100X7.25 = $725

5

In terms of dollar returns:
Price of Stock Six Months From Now
Stock price: 80 100 110 120
a. All stocks (100 shares) 8,000 10,000 11,000 12,000 This is 100 shares X price
b. All options (1,000) shares 0 0 10,000 20,000
c. Bills + 100 options 9,360 9,360 10,360 11,360

In terms of rate of return, based on a $10,000 investment:
Price of Stock Six Months From Now
Stock price: 80 100 110 120
All stocks (100 shares) -20% 0% 10% 20% This is (Price - Investment)/Investment
All options (1,000) shares -100% -100% 0% 100% This is (Price - Investment)/Investment
Bills + 100 options -6.40% -6.40% 3.60% 13.60% This is (Price - Investment)/Investment

1 The put option value also increase as the volatility increases
The parity relationship is given as
C = P + S0 - PV(X) - PV(Dividends)
Given a value of S and a risk-free interest rate, if C increases because of an ...

Solution Summary

The solution has various questions relating to investments, black-scholes option pricing model, calculating dollar returns, short positions

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