The following prices are available for call and put options on an AAPL stock priced at $145. The risk-free rate is 1 percent and the volatility is 0.20. The options have 180 days remaining (expiring in November). The Black-Scholes model was used to obtain the prices.
Exercise
Calls
Puts
140
11.12
5.44
150
6.28
10.54
160
3.22
17.44
Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
(1) Suppose you expect the stock price to remain at about $145 and decides to execute a butterfly spread using the November calls. What will be the cost of the butterfly spread?
(2) Suppose you expect the stock price to remain at about $145 and decides to execute a butterfly spread using the November calls. What will be the profit if the stock price at expiration is $155?
(3) Now suppose you construct a long straddle using November 150 call and 150 put. What will the straddle cost?
(4) Suppose you construct a long straddle using November 150 call and 150 put. What is the profit if the stock price at expiration is at $165?
(5) Now suppose you construct a long strangle using November 160 call and 140 put. What will the strangle cost?
(6) Suppose you construct a long strangle using November 160 call and 140 put. What is the profit if the stock price at expiration is at $130?
[Hint: Refer to the attached excel spreadsheet âWMGT Excel Ch 15 Option Strategies (AAPL)â after putting in appropriate information provided above.]
The following prices are available for call and put options on an AAPL stock priced at $145. The risk-free rate is 1 percent and the volatility is 0.20. The options have 180 days remaining (expiring in November). The Black-Scholes model was used to obtain the prices.
Exercise | Calls | Puts |
140 | 11.12 | 5.44 |
150 | 6.28 | 10.54 |
160 | 3.22 | 17.44 |
Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
(1) Suppose you expect the stock price to remain at about $145 and decides to execute a butterfly spread using the November calls. What will be the cost of the butterfly spread?
(2) Suppose you expect the stock price to remain at about $145 and decides to execute a butterfly spread using the November calls. What will be the profit if the stock price at expiration is $155?
(3) Now suppose you construct a long straddle using November 150 call and 150 put. What will the straddle cost?
(4) Suppose you construct a long straddle using November 150 call and 150 put. What is the profit if the stock price at expiration is at $165?
(5) Now suppose you construct a long strangle using November 160 call and 140 put. What will the strangle cost?
(6) Suppose you construct a long strangle using November 160 call and 140 put. What is the profit if the stock price at expiration is at $130?
[Hint: Refer to the attached excel spreadsheet âWMGT Excel Ch 15 Option Strategies (AAPL)â after putting in appropriate information provided above.]