1.Consider the following portfolio: You buy two July 2009 maturity call options on Dell with exercise price of 30. You also sell two July 2009 maturity put options on Dell with an exercise price of 40. The Call premium is $3.30 and the Put premium is $2.50.
Assume each option contract is for one share of stock.
e. What will be your profit/loss on this position if Dell is selling at $42 on the option maturity date?
f. What will be your profit/loss on this position if Dell is selling at $38 on the option maturity date?
g. At what stock price on the option maturity date will you just break even on your investment?
Make sure that you show or explain all calculations. Make sure you answer all questions above.
2- Consider an option on a non-dividend-paying stock when the stock price is $48, the strike price is $45, the risk-free interest rate is 6% per annum, the volatility is 20% per annum, and the time to maturity is five months. It can be shown that d1 = .7576 and d2 = .6285.
Create a delta neutral portfolio of call options and stock. Short 10,000 call options (100 contracts). How many shares would you buy or sell?
Make sure that you show or explain all calculations. Make sure that you state the number of shares. Make sure that you state whether you would buy or sell the shares
1.Consider the following portfolio: You buy two July 2009 maturity call options on Dell with exercise price of 30. You also sell two July 2009 maturity put options on Dell with an exercise price of 40. The Call premium is $3.30 and the Put premium is $2.50.
Assume each option contract is for one share of stock.
e. What will be your profit/loss on this position if Dell is selling at $42 on the option maturity date?
f. What will be your profit/loss on this position if Dell is selling at $38 on the option maturity date?
g. At what stock price on the option maturity date will you just break even on your investment?
Make sure that you show or explain all calculations. Make sure you answer all questions above.
2- Consider an option on a non-dividend-paying stock when the stock price is $48, the strike price is $45, the risk-free interest rate is 6% per annum, the volatility is 20% per annum, and the time to maturity is five months. It can be shown that d1 = .7576 and d2 = .6285.
Create a delta neutral portfolio of call options and stock. Short 10,000 call options (100 contracts). How many shares would you buy or sell?
Make sure that you show or explain all calculations. Make sure that you state the number of shares. Make sure that you state whether you would buy or sell the shares
Related questions
Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $168, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $163, the price of the put option is $10.85.
Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent.
a. What will be the profit/loss on this position if IBM is selling at $157 on the option expiration date? $
b. What will be the profit/loss on this position if IBM is selling at $172 on the option expiration date? $
c. At what two stock prices will you just break even on your investment (i.e., zero net profit)?
For the put, this requires that: $
For the call this requires that: $
d. What kind of âbetâ is this investor making; that is, what must this investor believe about IBMâs stock price in order to justify the position?
| betting that the IBM stock price will go up. | |
| betting that the IBM stock price will go down. | |
| betting that the IBM stock price will have low volatility. | |
| betting that the IBM stock price will have high volatility. |
