Stock XYZ is currently trading at $75,and you are very bearish about the stock(you believe that the stock price is goingto drop within the next two months).What action should you take, as aspeculator, to gain from yourexpectation: short a call or put optionand why?

As a speculator who believes that the stock price of XYZ will fall during the next two months, the…

Answered: Stock XYZ is currently trading at $75,…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock = $74 price Exercise price = $70 Risk-free rate = Option maturity = 4 months Standard deviation of annual stock returns 4.4% per year, compounded continuously Call price Put price = 62% per year
You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock = $86 price Exercise price = $85 Risk-free rate = Option maturity = 4 months Standard deviation of 5% per year, compounded continuously annual stock returns = 62% per year
You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock $72 price Exercise price = $70 Risk-free rate = deviation of Option maturity = 4 months Standard annual stock returns = Call price Put price 4.3% per year, compounded continuously = 61% per year
You have determined the price of a common stock (Apple, Google, etc.) will increase substantially over the next few months. In order to participate, make a profit, you could: I. Buy the stock today and sell it later for a profit II. Buy a Call Option with an exercise price believed to be lower than the future value III. Sell a Put Option with an exercise price believed to be higher than the future value. O A. I only O B. Il only O C.Il only O D.I, II. & III
In follow an Ito process with >0, a stock is worth $80 today, if the price of an option that pays the holder $2 exactly the first time the stock price reaches $200, what is the price of an option? Show all calculation.
The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume that the risk-free rate is zero. An investor sells put options with a strike price of $32. What is the risk-neutral probability of the underlying hitting $36 and what is the value of each put option? Question 5Answer a. 0.4 and $3.6 b. 0.6 and $3.6 c. 0.6 and $1.6 d. 0.4 and $1.6
fr1. Subject :- Accounting \ Graph the value of your portfolio as a function of the relevant stock price. Please create a graph for stock prices between 130 and 165. Assume today is the last day for exercising your options. Short a call at 163, long a put at 163, and long one share of the stock.
Suppose you own a call option on a stock with a strike price of $20 that expires today. The price of the underlying stock is $15. You exercise the option and immediately sell the stock. Please show a calculation of the value of your position.
Saved a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit would be, and what the percentage return would be. (Enter "O" if there is no profit or return from not exercising the option. Round your answer to 2 decimal places.) Today's Stock In/Out of the Company Option Strike Price Money? (Click to select) Premium Exercise? Profit Return eBook АВС Call 10 $10.26 1.06 (Click to select) v АВС Put 10 $10.26 0.91 (Click to select) v Print (Click to select) ABC Call 25 $23.93 1.01 (Click to select) v АВС Put 25 $23.93 In the money (Click to select) v eferences 2.21 Out of the money b. Now suppose that time has passed and the stocks' prices have changed as indicated in the table below. Recalculate your answers to part a. In/Out of the Money? (Click to select) Today's Stock Company Option Strike…
You obtain the following information concerning a stock and a put option Price of the stock $42 Strike price $40 Price of the put $3 Expiration date three months You want to purchase the stock but also want to use an option to reduce your risk of loss. a) What is the cash inflow or outflow from your position when you purchase your put option? c) What is the total profit or loss if the price of the stock stagnates and trades for $42 after three months? d) What is the total profit or loss if the price of the stock trades for $50 after three months? e) What is the total profit or loss if the price of the stock trades for $30 after three months?
Which of the following positions in options benefit if the underlying stock price increases? Assume the options have several months remaining until the exercise date. a. Short position in call and long position in put b. Short position in both call and put c. Long position in a put d. Long position in call and short position in put e. Short position in a call f. Short position in a put g. Long position in a call
Suppose that call options on ExxonMobil stock with time to expiration 6 months and strike price $87 are selling at an implied volatility of 27%. ExxonMobil stock price is $87 per share, and the risk-free rate is 6%. Required: If you believe the true volatility of the stock is 31%, would you want to buy or sell call options? Now you want to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold?

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Stock XYZ is currently trading at $75, and you are very bearish about the stock (you believe that the stock price is going to drop within the next two months). What action should you take, as a speculator, to gain from your expectation: short a call or put option and why?