USE THE INFORMATION GIVEN BELOW TO ANSWER QUESTIONS 1-2.
The Wall Street Journal reported the following prices for Microsoft options for trading on Friday, February 7 2010. The stock itself closed at $50.75.
Calls (Prices in $)
Strike Price
February
March
April
July
45
6.625
7.5
8
10.5
50
2.8125
4.75
5.875
55
1.0625
2.625
3.75
6
60
0.4375
1.3125
1.875
4.25
65
0.1875
0.625
1.25
70
0.0625
Puts (Prices in $)
Strike Price
February
March
April
July
45
1
1.8125
2.625
4.25
50
2.375
4
5
55
5.375
7.625
8.125
8.75
60
9.75
10.875
12.5
65
15.5
16.5
16.75
70
20.75
1) If the risk free rate of interest (continuously compounded) is 5%, then does put- call parity hold for the April options with X=K=$50, and X=K=$65 (calculations based on 71 days to maturity, 365 day year)?
2a) Construct a payoff diagram for buying a $50 April call option on Microsoft. Construct the diagrams for net payoffs, i. e. after deducting the option premium.
2b) Construct a payoff diagram for writing a $50 April call option on Microsoft and for writing a $50 April put option (combined). Construct the diagrams for net payoffs, i. e. after adding the option premium.
USE THE INFORMATION GIVEN BELOW TO ANSWER QUESTIONS 1-2.
The Wall Street Journal reported the following prices for Microsoft options for trading on Friday, February 7 2010. The stock itself closed at $50.75.
| Calls (Prices in $) | ||||
| Strike Price | February | March | April | July |
| 45 | 6.625 | 7.5 | 8 | 10.5 |
| 50 | 2.8125 | 4.75 | 5.875 | |
| 55 | 1.0625 | 2.625 | 3.75 | 6 |
| 60 | 0.4375 | 1.3125 | 1.875 | 4.25 |
| 65 | 0.1875 | 0.625 | 1.25 | |
| 70 | 0.0625 | |||
| Puts (Prices in $) | ||||
| Strike Price | February | March | April | July |
| 45 | 1 | 1.8125 | 2.625 | 4.25 |
| 50 | 2.375 | 4 | 5 | |
| 55 | 5.375 | 7.625 | 8.125 | 8.75 |
| 60 | 9.75 | 10.875 | 12.5 | |
| 65 | 15.5 | 16.5 | 16.75 | |
| 70 | 20.75 | |||
1) If the risk free rate of interest (continuously compounded) is 5%, then does put- call parity hold for the April options with X=K=$50, and X=K=$65 (calculations based on 71 days to maturity, 365 day year)?
2a) Construct a payoff diagram for buying a $50 April call option on Microsoft. Construct the diagrams for net payoffs, i. e. after deducting the option premium.
2b) Construct a payoff diagram for writing a $50 April call option on Microsoft and for writing a $50 April put option (combined). Construct the diagrams for net payoffs, i. e. after adding the option premium.
