Consider this Put option. P= $40, X=45, D=0.80, U=1.2 Risk free Rate: 3%. T= 6months
a-) If you hold one put option today, inidicate whether you need to buy or short and how many shares of stock in order to completely hedge the risk in the long put position in next quarter i.e work for one quarter from now? (Hint: Use the binomial/ construct trees)
b-) What is today's delta with same maturity and expecise price (X) and written on the same stock as the put option from part (a) (Hint: Use put-call)
c-) How will calculate in (a) change if put is American. Dont draw trees, Just indicate.
d-) Consider long Starddle position constructed from Euro put from part (a) and european call option on XYZ Stock with same strike price and maturity. What is the annualized continously compunded expected return on the straddle over next quarter, between now and quarter from now? Assume XYZ stock has an expected continously compunded rate of 10% per year
Consider this Put option. P= $40, X=45, D=0.80, U=1.2 Risk free Rate: 3%. T= 6months
a-) If you hold one put option today, inidicate whether you need to buy or short and how many shares of stock in order to completely hedge the risk in the long put position in next quarter i.e work for one quarter from now? (Hint: Use the binomial/ construct trees)
b-) What is today's delta with same maturity and expecise price (X) and written on the same stock as the put option from part (a) (Hint: Use put-call)
c-) How will calculate in (a) change if put is American. Dont draw trees, Just indicate.
d-) Consider long Starddle position constructed from Euro put from part (a) and european call option on XYZ Stock with same strike price and maturity. What is the annualized continously compunded expected return on the straddle over next quarter, between now and quarter from now? Assume XYZ stock has an expected continously compunded rate of 10% per year
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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 priceâs 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 â 90)â(St â 90) | ||
Put (short) | (Click to select)â(90 â St)(90 â St) | ||
Lending position | |||
Total | (Click to select)S0St | (Click to select)StS0 | |