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You have a portfolio containing one call option with exercise price $70, one call option with exercise price $120, one put option with exercise price $40 and one put option with exercise price $200. What is the payout (payoff) of the portfolio if the underlying asset is selling for $98 at maturity?

(Hint: You do not need to draw the payout diagram).

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Reid Wolff
Reid WolffLv2
28 Sep 2019
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1) You purchased four WXO 30 call option contracts at a quoted price of $.34. What is your net gain or loss on this investment if the price of WXO is $33.60 on the option expiration date? 2) You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date? 3) You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4%. Your option has a strike price of $20 and you assume that it will finish in the money. What is the current value of your call option? 4) Three months ago, you purchased a put option on WXX stock with a strike price of $61 and an option price of $.60. The option expires today when the value of WXX stock is $63.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment? 5) Suppose you look in the newspaper and see ABC trading at $50 per share. Calls on ABC with one month to expiration and an exercise price of $45 are trading at $6.50 each. Puts on ABC with one month to expiration and an exercise price of $55 are trading at $3.50 each. Are these prices reasonable? Explain. (Ignore transactions costs.) 6) You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment?

1. A put option on Snapple Beverage has an exercise price of $30. The current stock price of Snapple Beverage is $24.25. The put option price is $7.75

a. Is this option an at-the-money option, out-of-the-money option, or in-the-money option?

b. Compute the intrinsic value and the time value of this option.

2. You write a put option with X = $50 and buy a put with X = $60. One is selling for $3 and another is selling for $8. The options are on the same stock and have the same maturity date.

a. What is the break-even point for this strategy?

b. How much is profit/loss when stock price is $55?

3. George Evans is currently bullish on the common stock of the Franklin Corporation. Franklin’s current price is $75 and a 3-month call with an exercise price of $75 is selling for $4. Ignore commissions and taxes. If Evans purchases the call and the price of the stock increases to $81 after 3 months, what kind of rate of return will he make?

4. You write one IBM July 120 call contract for a premium of $4. You hold the option until the expiration date when IBM stock sells for $113 per share. What will be your realized profit/loss on the investment?

1.Consider the following portfolio: You buy two July 2009 maturity call options on Dell with exercise price of 30. You also sell two July 2009 maturity put options on Dell with an exercise price of 40. The Call premium is $3.30 and the Put premium is $2.50.

Assume each option contract is for one share of stock.

e. What will be your profit/loss on this position if Dell is selling at $42 on the option maturity date?

f. What will be your profit/loss on this position if Dell is selling at $38 on the option maturity date?

g. At what stock price on the option maturity date will you just break even on your investment?

Make sure that you show or explain all calculations. Make sure you answer all questions above.

2- Consider an option on a non-dividend-paying stock when the stock price is $48, the strike price is $45, the risk-free interest rate is 6% per annum, the volatility is 20% per annum, and the time to maturity is five months. It can be shown that d1 = .7576 and d2 = .6285.

Create a delta neutral portfolio of call options and stock. Short 10,000 call options (100 contracts). How many shares would you buy or sell?

Make sure that you show or explain all calculations. Make sure that you state the number of shares. Make sure that you state whether you would buy or sell the shares

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