Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $172, and the price of the call

image text in transcribed

Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $172, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $167, the price of the put option is $10.85. Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent. a. What will be the profit/loss on this position if IBM is selling at $162 on the option expiration date? $ 14.78 b. What will be the profit/loss on this position if IBM is selling at $178 on the option expiration date? $ 13.78 c. At what two stock prices will you just break even on your investment (i.e., zero net profit)? For the put, this requires that: $ 0 For the call this requires that: $ 0 d. What kind of bet is this investor making; that is, what must this investor believe about IBM's stock price in order to justify the position? O betting that the IBM stock price will go up. O betting that the IBM stock price will go down. O betting that the IBM stock price will have low volatility. O betting that the IBM stock price will have high volatility. Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $172, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $167, the price of the put option is $10.85. Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent. a. What will be the profit/loss on this position if IBM is selling at $162 on the option expiration date? $ 14.78 b. What will be the profit/loss on this position if IBM is selling at $178 on the option expiration date? $ 13.78 c. At what two stock prices will you just break even on your investment (i.e., zero net profit)? For the put, this requires that: $ 0 For the call this requires that: $ 0 d. What kind of bet is this investor making; that is, what must this investor believe about IBM's stock price in order to justify the position? O betting that the IBM stock price will go up. O betting that the IBM stock price will go down. O betting that the IBM stock price will have low volatility. O betting that the IBM stock price will have high volatility

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Healthcare Finance Modern Financial Analysis For Accelerating Biomedical Innovation

Authors: Andrew W. Lo, Shomesh E. Chaudhuri

1st Edition

0691183821, 978-0691183824

More Books

Students also viewed these Finance questions

Question

Describe the method of sealing a ball bearing from contaminants.

Answered: 1 week ago