The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $90 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $90 is $8.69.
a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $90 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price of a 3-month call option $
b-1. What would be a simple options strategy using a put and a call to exploit your conviction about the stock priceâs future movement?
Stock price's future movement (Click to select)Buy a putSell a straddleBuy a callSell a callBuy a straddleSell a put
b-2. What is the most money you can make on this position? (Do not round intermediate calculations.Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Amount $
b-3. How far can the stock price move in either direction before you lose money? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Stock price $
c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now? (Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
Position Immediate CF CF in 3 months ST < X ST > X Call (long) (Click to select)(St â 90)â(St â 90) Put (short) (Click to select)â(90 â St)(90 â St) Lending position Total (Click to select)S0St (Click to select)StS0
| The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $90 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $90 is $8.69. |
| a. | If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $90 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Price of a 3-month call option | $ |
| b-1. | What would be a simple options strategy using a put and a call to exploit your conviction about the stock priceâs future movement? |
| Stock price's future movement | (Click to select)Buy a putSell a straddleBuy a callSell a callBuy a straddleSell a put |
| b-2. | What is the most money you can make on this position? (Do not round intermediate calculations.Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Amount | $ |
| b-3. | How far can the stock price move in either direction before you lose money? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Stock price | $ |
| c. | How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now? (Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) |
| Position | Immediate CF | CF in 3 months | |
| ST < X | ST > X | ||
| Call (long) | (Click to select)(St â 90)â(St â 90) | ||
| Put (short) | (Click to select)â(90 â St)(90 â St) | ||
| Lending position | |||
| Total | (Click to select)S0St | (Click to select)StS0 | |
Related questions
| The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $120 per share, and the price of a 6-month call option at an exercise price of $120 is $8.89. |
| a. | If the risk-free interest rate is 8% per year, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $120? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Put-call parity | $ |
| b. | What would be a simple options strategy to exploit your conviction about the stock priceâs future movements? How far would it have to move in either direction for you to make a profit on your initial investment? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.) |
| Total cost of the straddle | $ |
