Consider a stock priced at $30 with a standard deviation of 0.3.The risk-free rate is 0.05. There are put and call optionsavailable at exercise prices of 30 and a time to expiration of sixmonths. The calls are priced at $2.89 and the puts cost $2.15.There are no dividends on the stock and the options are European.Assume that all transactions consist of 100 shares or one contract(100 options). Use this information to answer questions 6 through10. Suppose the investor constructed a covered call. At expirationthe stock price is $27. What is the investor's profit? a. $589 b.$289 c. $2,989 d. $2,711 e. none of the above What is the breakevenstock price at expiration for the transaction described in problem6? a. $27.11 b. $30.00 c. $32.89 d $29.89 e. none of the above 8.If the transaction described in problem 6 is closed out when theoption has three months to go and the stock price is at $36, whatis the investor's profit? a. $600 b. $311 c. $889 d. $229 e. noneof the above 9. What is the maximum profit from the transactiondescribed in Question 6 if the position is held to expiration? a.$3,289 b. $289 c. infinity d. $2,711 e. none of the above 10. Whatis the minimum profit from the transaction described in Question 6if the position is held to expiration? a. -$2,711 b. -$3,289 c.-$3,000 d. negative infinity e. none of the above
Consider a stock priced at $30 with a standard deviation of 0.3.The risk-free rate is 0.05. There are put and call optionsavailable at exercise prices of 30 and a time to expiration of sixmonths. The calls are priced at $2.89 and the puts cost $2.15.There are no dividends on the stock and the options are European.Assume that all transactions consist of 100 shares or one contract(100 options). Use this information to answer questions 6 through10. Suppose the investor constructed a covered call. At expirationthe stock price is $27. What is the investor's profit? a. $589 b.$289 c. $2,989 d. $2,711 e. none of the above What is the breakevenstock price at expiration for the transaction described in problem6? a. $27.11 b. $30.00 c. $32.89 d $29.89 e. none of the above 8.If the transaction described in problem 6 is closed out when theoption has three months to go and the stock price is at $36, whatis the investor's profit? a. $600 b. $311 c. $889 d. $229 e. noneof the above 9. What is the maximum profit from the transactiondescribed in Question 6 if the position is held to expiration? a.$3,289 b. $289 c. infinity d. $2,711 e. none of the above 10. Whatis the minimum profit from the transaction described in Question 6if the position is held to expiration? a. -$2,711 b. -$3,289 c.-$3,000 d. negative infinity e. none of the above
Related questions
The following prices are available for call and put options on an AAPL stock priced at $145. The risk-free rate is 1 percent and the volatility is 0.20. The options have 180 days remaining (expiring in November). The Black-Scholes model was used to obtain the prices.
| Exercise | Calls | Puts |
| 140 | 11.12 | 5.44 |
| 150 | 6.28 | 10.54 |
| 160 | 3.22 | 17.44 |
Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
(1) Suppose you expect the stock price to remain at about $145 and decides to execute a butterfly spread using the November calls. What will be the cost of the butterfly spread?
(2) Suppose you expect the stock price to remain at about $145 and decides to execute a butterfly spread using the November calls. What will be the profit if the stock price at expiration is $155?
(3) Now suppose you construct a long straddle using November 150 call and 150 put. What will the straddle cost?
(4) Suppose you construct a long straddle using November 150 call and 150 put. What is the profit if the stock price at expiration is at $165?
(5) Now suppose you construct a long strangle using November 160 call and 140 put. What will the strangle cost?
(6) Suppose you construct a long strangle using November 160 call and 140 put. What is the profit if the stock price at expiration is at $130?
[Hint: Refer to the attached excel spreadsheet âWMGT Excel Ch 15 Option Strategies (AAPL)â after putting in appropriate information provided above.]
