Question
For the following investment strategies in derivatives indicate: (i) Under which circumstances are the options exercised. (ii) Under which circumstances the buyer and the seller
For the following investment strategies in derivatives indicate: (i) Under which circumstances are the options exercised. (ii) Under which circumstances the buyer and the seller generate profits. (iii) Draw a diagram that shows how the payoffs and net profits of each party depend on the price of the underlying asset at expiration. (a) A European call option on a share is sold for 4. The share price today is 47 and the exercise price is 50 . (b) A European put option on a share is bought for 3. The share price today is 42 and the exercise price is 40 . (c) A European put option to sell a share at an exercise price of 60$ is bought for 4$. (d) A European call option to buy a share at an exercise price of 50 is bought for 2.50.
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