1. Ms. Smith longs 1 XYZ Feb. 40 Call @ 3 and hold it it to expiration. Assuming no transaction costs, analyze this investment in terms of possible profit or loss. Draw a payoff diagram.

2. Ms. Smith writes 10 BETA Jan. 40 put @ 4. The put is exercised when the stock is trading at 38. Ms. Smith immediately sells the stocks in the market. What is Ms. Smiths profit or loss?

3.Ms. Smith writes 10 KLP Dec. 55 call @ 5, uncovered. The call is excersized when the stock is trading at $58. What is Ms. Smiths profit or loss?

4. In Dec. 16 an investor buys 1 ALFA Feb 60 call @ 3 1/2. In January 10th ALFA share closes at $63. What is the intrinsic value of the call? What is its time value?

5. Ms. Smith shorts 1 XYZ Feb. 40 Call @ 3 covered. She purchases XYZ for $30 a share. Assuming no transaction costs, analyze this investment in terms of possible profit or loss. Draw a payoff diagram.

6. Suppose you have the following positions
Long 10 CDE Jan. 50 call @ 3
Long 10 CDE Jan. 50 put @ 4

Analyze this investment in terms of possible profit or loss. Draw a payoff diagram.

Solution Summary

The solution calculates payoffs from buying/writing call and put options.

AD 13: The Dow Jones Industrial Average on August 15, 2008 was 11,660 and the price of the December 117 call was $3.50. Assume the risk-free rate is 4.2%, the dividend yield is 2% and the option expires on December 25 (options markets are closed the day after Christmas).
Q1: Use Derivagem to calculate the implied volatility o

A stock has a spot price of $35. Its May options are about to expire. One of its puts is worth $5 and one of its calls is worth $5. The exercise price of the put must be ___A__ and the exercise price of the call must be ___B__. (please show work for A & B)

A stock is worth $20 today, and it may increase or decrease $5 over the next year. If the risk-free rate of interest is 6 percent, calculate the market price of the at-the money putandcalloptions on this stock that expire in one year. Which option is more valuable, the put or the call? Is it always the case that a call option

1. How are putoptions used by speculators? can you describe the conditions in which their strategy would backfire. What is the maximum loss that could occur for a purchaser of a put option?
2. Now answer the above for calloptions instead of putoptions.

Question 1: A stock is selling for $26.00. A 2-month put option with a strike price of $30.00 has an option premium of $4.15. The risk-free rate is 2.5% and the market rate is 9.75%. What is the option premium on a 2-month call with a $30.00 strike price? Assume the options are European style.
Please show all work.

Suppose that the price of a non-dividend paying stock is $32, its volatility is 30%, and the risk-free rate for all maturities is 5% per annum. Use derivagem to calculate the costs of setting up the following positions. In each case provide a table showing the relationship between the profit and final stock price. Ignore the imp

Suppose that the price of a non-dividend-paying stock is $42, its volatility is 35%, and the risk-free rate for all maturities is 6% per annum. Use Derivagem (Analytic European) to calculate the cost of setting up the following positions. Assume Tree Steps = 100. In each case provide a spreadsheet showing the relationship betwee

Use the option quote information shown to answer the questions that follow. The stock price is currently selling for $83.
Option and NY Expiration Strike/Exercise Calls Puts
Close Price Vol. Last Vol. Last
RWJ

The price of a stock is $40. The price of a one year European put option on the stock with a strike price of $30 is quotes as $7 and the price of a one year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 calloptions, and buys 100 putoptions.

QUESTION 1
Focus on the June 445 call. Suppose you bought this call at the price indicated.
How high must AAPL's price rise at expiration to break even on this option?
QUESTION 2
Now, look at the June 445 put. Provide a table showing the profit at expiration to a put buyer across a range of stock prices.
QUESTION 3