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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
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
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