🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeTextbook Notes300,000AU3,000

FNCE30007 Chapter Notes - Chapter 9: Stock Split, Put Option, Futures Contract

22 views3 pages
orangemole587
29 Jun 2020
School
University of Melbourne
Department
Finance
Course
FNCE30007
Professor
Federico Nardari

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Expiration date/maturity date = date specified in contract. Exercise price/strike price = price specified in contract. American options can be exercised at any time up to expiration. European options can be exercised only on the expiration date. Long position in a european call option = max(st - k, 0) Short position in a european call option = -max(st - k, 0) = min(k - st, 0) Long position in a european put option = max(k - st, 0) Short position in a european put option = -max(k - st, 0) = min(st - k, 0) 1 contract = 10,000 units of a currency. Mostly european-style, except for s&p100 which is american. Normally matures just before the delivery period in the futures contract. Call option = holder acquires a long position in the underlying futures contract and a cash amount equal to the excess of the futures price over the strike price.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

FNCE30007 Lecture Notes - Lecture 1: Miko, Reik, Fumi-E
sangriagoldfish114
FNCE30007 Chapter Notes - Chapter 2: Arbitrage, Futures Contract, Systemic Risk
orangemole587
FNCE30007 Chapter Notes - Chapter 1: Nyse American, Electronic Trading, Spot Contract
orangemole587

Related Questions

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 price’s 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 − 90)−(St − 90)
Put (short) (Click to select)−(90 − St)(90 − St)
Lending position
Total (Click to select)S0St (Click to select)StS0

4. If you __________, then you may be forced to buy the underlying stock.

  1. Buy a Call Option
  2. Buy a Put Option
  3. Sell a Call Option
  4. Sell a Put Option

5. Lower risk free rates results in __________ Put Option prices and ______ Call Option Prices.

  1. Higher, Higher
  2. Higher, Lower
  3. Lower, Lower
  4. Lower,Higher

6. Which Statement is correct?

  1. Speculators make money by setting up transactions and are the go betweens in the derivatives market.
  2. A firm should always hedge in order to reduce risk whenever they can
  3. Hedgers do not mind losing money as long as they are reducing their risk
  4. Brokers try to find mispricings in the market where they can buy at a low price and simultaneously sell at a high price without taking on any risk.

7. Which statement regarding executive stock options is correct?

  1. They are short term and usually expire after one year.
  2. They should reduce agency costs by making managers act like shareholders
  3. They are included as compensation expense on the income statement.
  4. Managers can sell the options on an exchange

8. Which of the following statements are correct?

  1. Forward contracts are standardized and trade on an exchange
  2. Profits and Losses on Futures contracts are marked to market on a daily basis.
  3. Delivery of the assets almost never occurs in the forward market
  4. Futures contracts allow you to buy or sell individual stocks for a preset price on the expiration date.

9. You need a barrel of oil next month. You could either buy the oil today and keep it for a month, wait and buy the oil next month when you need it, you could enter into a futures contract to buy oil at the current futures price $81, or you can pay $2 for a call option that gives you the right to buy oil for $80. The current spot price is $79 and the risk free rate is 2%, and carrying costs are $2. If the price ends up being $84 next month, then you should have ______________.

  1. Waited to buy the oil
  2. Entered into a futures contract
  3. Bought a call option
  4. Buy the oil today and store it for a month.

10. Which of these should cause the dollar to appreciate?

  1. A decline in foreign demand for US goods and services
  2. An increase in US demand for foreign goods and services
  3. An increase in foreign demand for US financial assets
  4. An increase in the amount of gold held by the US central bank