11. Consider a FB stock priced at $150 with a standard deviation of 0.22. The risk-free rate is 0.01 (rc = 0.00995). There are put and call options available at exercise prices of 150 and expires on September 15 (T = 0.3644). The calls are priced at $8.20 and the puts cost $7.66. 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).
Please answer all parts.
(1) What would be your maximum possible profit if you purchase this call?
(2) What would be your maximum possible loss if you purchase this call?
(3) At what stock price will you break even on the purchase of the call?
(4) What would be your profit if you buy a call, hold it to expiration and the stock price at expiration is $165?
(5) What is maximum possible profit of the call writer?
(6) Suppose you constructed a covered call. At expiration, the stock price is $165. What is your profit?
11. Consider a FB stock priced at $150 with a standard deviation of 0.22. The risk-free rate is 0.01 (rc = 0.00995). There are put and call options available at exercise prices of 150 and expires on September 15 (T = 0.3644). The calls are priced at $8.20 and the puts cost $7.66. 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).
Please answer all parts.
(1) What would be your maximum possible profit if you purchase this call?
(2) What would be your maximum possible loss if you purchase this call?
(3) At what stock price will you break even on the purchase of the call?
(4) What would be your profit if you buy a call, hold it to expiration and the stock price at expiration is $165?
(5) What is maximum possible profit of the call writer?
(6) Suppose you constructed a covered call. At expiration, the stock price is $165. What is your profit?
Related questions
15. The following prices are available for call and put options on a FB stock priced at $150 with a standard deviation of 0.22. The risk-free rate is 0.01 (rc = 0.00995). The options have 133 days remaining (expiring in September). The Black-Scholes model was used to obtain the prices
| Exercise | Calls | Puts |
| 140 | 14.03 | 3.53 |
| 150 | 8.20 | 7.66 |
| 160 | 4.33 | 13.75 |
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 $150 and decides to execute a butterfly spread using the September calls. What will be the cost of the butterfly spread?
(2) Suppose you execute a butterfly spread using the September calls. What will be the profit if the stock price at expiration is $150?
(3) Now suppose you construct a long straddle using Sep 150 call and 150 put. What will the straddle cost?
(4) Suppose you construct a long straddle using Sep 150 call and 150 put. What is the profit if the stock price at expiration is at $170?
(5) Now suppose you construct a long strangle using September 160 call and 140 put. What will the strangle cost?
(6) Suppose you construct a long strangle using September 160 call and 140 put. What is the profit if the stock price at expiration is at $135?
