Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of
A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of put options. A European put option allows you to sell a share of stock at a given price, called the exercise price, at a particular point in time after the purchase of the option. For example, suppose you purchase a six-month European put option for a share of stock with an exercise price of $26. If six months later, the stock price per share is $26 or more, the option has no value. If in six months the stock price is lower than $26 per share, then you can purchase the stock and immediately sell it at the higher exercise price of $26. If the price per share in six months is $22.50, you can purchase a share of the stock for $22.50 and then use the put option to immediately sell the share for $26. Your profit would be the difference, $26 - $22.50 = $3.50 per share, less the cost of the option. If you paid $1.00 per put option, then your profit would be $3.50 $1.00 = $2.50 per share. The point of purchasing a European option is to limit the risk of a decrease in the per-share price of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 100 six-month European put options with an exercise price of $26. Each put option costs $1. A- (a) Using data tables, construct a model that shows the value of portfolio with options and without options for a share price in six months between $20 and $29 per share in increments of $1.00. What is the benefit of the put options on the portfolio value for the different share prices? For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If you answer is zero, enter "O". Share Price Benefit of Options $20 250 li $21 $ 200 $22 $ 150 $23 $ 100 blank (Example: -300). If you answer is zero, enter "O". Share Price Benefit of Options $20 $ 250 $21 $ 200 $22 $ 150 $23 $ 10d $24 $ 50 $25 $ $ 0 $26 $ -50 $27 -50 $ $ $28 -50 $29 $ -50 (b) Discuss the value of the portfolio with and without the European put options. The lower the stock price, the more beneficial the put options. The options are worth nothing at a 25 stock price of $ There is a benefit from the put options to the overall or higher 24 or lower portfolio for stock prices of $ 9:30 P A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of put options. A European put option allows you to sell a share of stock at a given price, called the exercise price, at a particular point in time after the purchase of the option. For example, suppose you purchase a six-month European put option for a share of stock with an exercise price of $26. If six months later, the stock price per share is $26 or more, the option has no value. If in six months the stock price is lower than $26 per share, then you can purchase the stock and immediately sell it at the higher exercise price of $26. If the price per share in six months is $22.50, you can purchase a share of the stock for $22.50 and then use the put option to immediately sell the share for $26. Your profit would be the difference, $26 - $22.50 = $3.50 per share, less the cost of the option. If you paid $1.00 per put option, then your profit would be $3.50 $1.00 = $2.50 per share. The point of purchasing a European option is to limit the risk of a decrease in the per-share price of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 100 six-month European put options with an exercise price of $26. Each put option costs $1. A- (a) Using data tables, construct a model that shows the value of portfolio with options and without options for a share price in six months between $20 and $29 per share in increments of $1.00. What is the benefit of the put options on the portfolio value for the different share prices? For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If you answer is zero, enter "O". Share Price Benefit of Options $20 250 li $21 $ 200 $22 $ 150 $23 $ 100 blank (Example: -300). If you answer is zero, enter "O". Share Price Benefit of Options $20 $ 250 $21 $ 200 $22 $ 150 $23 $ 10d $24 $ 50 $25 $ $ 0 $26 $ -50 $27 -50 $ $ $28 -50 $29 $ -50 (b) Discuss the value of the portfolio with and without the European put options. The lower the stock price, the more beneficial the put options. The options are worth nothing at a 25 stock price of $ There is a benefit from the put options to the overall or higher 24 or lower portfolio for stock prices of $ 9:30 P
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started