a. You purchase one IBM July 120 put contract for a premium of $3. You hold the option until the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the investment.
b. The potential loss for a writer of a naked call option on a stock is _________.
A) equal to the call premium
B) larger the lower the stock price C) limited
D) unlimited
c. You purchase one IBM March 120 put contract for a put premium of $10. The maximum profit that you could gain from this strategy is _________.
a. You purchase one IBM July 120 put contract for a premium of $3. You hold the option until the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the investment.
b. The potential loss for a writer of a naked call option on a stock is _________.
A) equal to the call premium
B) larger the lower the stock price C) limited
D) unlimited
c. You purchase one IBM March 120 put contract for a put premium of $10. The maximum profit that you could gain from this strategy is _________.
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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. |