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1.An investor purchased a call option for $2.00 two months ago that allows the investor to purchase one share at $30. The option is now about to expire. a.Construct a table of the investor’s profit (loss) given the following stock prices at expiration: $10, 15, 20, 25, 30, 35, 40, 45, 50. b.Now construct a table assuming the option had been a put option instead of a call option. c.Graph the profit/loss schedules in parts (a) and (b). Indicate at what stock prices the investor would breakeven with both the call and put options. d.If the investor had purchased both the call and the put, what type of strategy would they be using?

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Beverley Smith
Beverley SmithLv2
27 Mar 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?

Jeff believes that Microsoft stock will move significantly in either direction with the release of the next version of Windows. Jeff wants to design a strangle strategy to take advantage of the possible move in the stock price. Jeff knows that Microsoft’s call and put prices are $1 and $1.50 with strike prices of $26 and $24, respectively. The options will expire in three months and the stock is currently trading at $25.

a. Should Jeff embark on a long or short strangle strategy?

b. What is the maximum possible loss per share, gain per share, and breakeven price at the expiration of the options?

c. The delta of this call option is 0.50. What is the change in the call option price if Microsoft moves up to $28?

Please be more specific. Thank you!

You would like to construct a position that will have a constant "ceiling" on the total profit if stock price goes down and a constant "floor" on the total loss if the price goes up. Use must use two put options to achieve this result. You have access to two put options with the following characteristics: Option A: strike price of $35, the price of this put option is $3 per share. Option B: strike price is $30, the price of this put option is $1 per share. Both options have the same time to maturity and can only be excercised on expiration date.

(a) Describe you position in the two put options.

Given your answer in part a answer parts b, c, d and e about the combined position.

(b) What is your total profit or loss per share if the stock price is $33 at expiration?

(c.) What is your total profit or loss per share if the stock price is $5 at expiration?

(d) What is your total profit or loss per share if the stock price is $40 at expiration?

(e) Below draw the per share profit profiles for each of the options you have selected in part a and their combined (total) profit at expiration (label each axis, each profile and all breakeven points)

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