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Option traders often refer to “straddles”.” Here is an example: ∙ Straddle: Buy one call with exercise price of $100 and simultaneously buy one put with exercise price of $100. Price of the call option is $15 and price of the put option is $10. Draw the position diagram for the straddle.
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- Suppose you construct a strategy based on options on a stock that is currently selling for $100. The strategy is as follows: Buy one call option having an exercise price of $95. Sell two calls having an exercise price of $100. Buy one call option having an exercise price of $105. All of the options are written on the same stock and all have the same expiration date. Compute the payoff (the dollars you receive) from this strategy at the expiration date for each of the following alternative stocks prices: $90, $95, $98, $100, $102, $105, and $110. What additional information would be required to determine whether your strategy had been profitable? What is the name of this strategy?a) Plot the payoff and profit of the following options based strategy: Buy 3 puts with strike 100, sell 4 puts with strike 110 and buy 1 put with strike 140. Explain all your calculations. b) If the price of the put with strike 100 is $8 and the price of the put with strike 140 is $16, what can you say about the price of the put with strike 110? ExplainCalculate the price of a call and a put option based on the Black-Scholes option pricing.
- You are using a two-step binomial tree to estimate the price of a put option on MCD. The strike price of the put option is $22. The price of MCD today is $32. The risk-free rate is 5%. What is the price of the put? Round your solution to the nearest three decimals if needed (Le. 2.312). Please do not type the $ symbol. u-3 d= 0.59 Click on the arrow next to the file below. Next, create a new sheet in the Respondus LockDown Browser spreadsheet. You can use this blank spreadsheet to calculate the answer. Blank Spreadsheet.xisx2. Graph a call to buy option and explain how its payoff is given. Explain when it is in the money, at the money and out of the money.Using the attached option pricing model and related data K = 45; St = 40 t = 4/12; r =03; SD/σ = 0.4; N = 0.07, calculate the value of the call option
- Topic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places Based on the table, compute the 1. value of the call optionA trader buys a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same maturity. The call costs $3 and the put costs $4. Draw a diagram showing the variation of the trader’s profit with the asset price. Please do not copy/paste other responses that are provided elsewhere.For each of the following option positions state the risk profile, draw the profit and loss area and show the breakeven price on each graph. a) Long 7.00 call @ 0.30 b) Short 7.00 call @ 0.30 Risk profile: Risk profile: c) Long 7.00 put @ 0.20 d) Short 7.00 put @ 0.20 Risk profile: Risk profile:
- Assume that you have been given the following information on Purcell Corporations call options: According to the Black-Scholes option pricing model, what is the options value?Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different. Use the following table to identify whether each statement describes put options or call options. Statement Put Option Call Option 1. When the exercise price increases, option prices increase. 2. An option is more valuable the longer the maturity. 3. The effect of the time to maturity on the option prices is indeterminate. 4. As the risk-free rate increases, the value of the option increases.Topic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places Based on the table, compute the 2. value of the put option.
