Here are three queswtion 6,7,9 needs to be answers, the rest of them the info for each questions are in order, there !is no missing information!, please read everything, the question is complete.
Questions:
6. You expect the price of a stock to decline but do not want to sell the stock short and run the risk that the price of the stock may rise dramatically. How could you use a bear spread strategy to take advantage of your expectation of a lower stock price?
7. You sell a stock short. How can you use an option to reduce your risk of loss should the price of the stock rise?
9. If you thought a stock was fairly valued and its price would not change, how could you use a straddle to take advantage of your valuation? If you follow this strategy and the stock's price does not remain stable, have you increased your risk exposure?
(The problems here are complete, I screenshot everything in order, I think it is suppose to answer those boxes with the information provided. please do it carefully. )
Calls+ Puts Bid Ask Strike Bid 5.81~ Ask" 5.88- TUV+ 2. Straddle using options on TUV stock" t Oct 1.19 ~ 1.44 + 5.00 0.19 ~ 0.38 ~ You wish to short the January 7.50 straddle. ~ 0.25~ 0.31 ~ 7.50 1.75- 1.94 ~ There are 21 days remaining in the January cycle.~ 0.00 0.13+ 10.00 4.00~ 4.25 ~ Jan 1. How much will you receive for selling three TUV January~ 1.44 ~ 1.63+ 5.00 0.44~ 0.69 ~ straddles based on market prices (at left)?~ 0.50~ 0.69 7.50 1.88~ 2.13 ~ 0.13~ 0.31 ~ 10.00 4.00 ~ 4.38 ~ 0.00~ 0.25+ 12.50+ 6.38 ~ 6.88 ~ 2. What are the break-even points be for your position?~ + 0.00~ 0.25+ 15.00 8.88 ~ 9.38 ~ 3. What is the value of your position if TUV rallies to $11 at expiration?~ 4. What is the value of your position if TUV moves to $6 at expiration?" 5. What is the value of your position if TUV falls to $4 at expiration?~_l |_ Strangles" Strangles are very similar to straddles in many ways: they are composed of a combination of puts and calls, and for the long position, extreme moves in the * price of the underlying are necessary for the position to be protable, and protability is not dependent upon direction {a sharp downward move can alw be protable). The major difference between the strangle and the straddle is that with the strangle you must use different strike prices for the puts 8- calls: A long strangle is created by purchasing the same number of calls and puts on the same underlying with the same expiration, but with different strike prices. - The long strangle is useful in markets that are about to experience high volatility, as extreme movements in the underlying are necessary for the 9 position to be profitable. The risk/reward aspects are similar to those of the long straddle in that it offers limited risk and unlimited return." A short strangle is created by selling the same number of calls and puts on the same underlying with the same expiration, but with different strike prices. * The short strangle is used in markets that are about to experience low volatility. It is established by selling both an OTM put and an OTM call, with the 0 current price of the underlying centered between the two strike prices. This gives the trader a price range within which hislher position is profitable .00 $4 Long Strangle? 52.00 Composition: Long a call with a high strike and long a puts with a low strike, both with the same expirations 5. Max Profit: Unlimited to the upside, limited" 59-00) by the price of the stock to the downside9 _ Lon Call "4'00, _ . Lon:Put Max Loss: Debit incurred to buy strangle" $( 6.00) Lon| Suangb . . . BEP: There are 2 -- lower stke minus debit 8v) $(8.00) upper strike plus debits $(1o.oo) 5mm) $(14.oo) Long Strangle Long Strangle on YZA (stock at $150) $4.00 Long 1 YZA Oct 110 put @ $6.125 Long 1 YZA Oct 185 call @ $6.50 $2.00 = Long 1 YZA Oct 110/185 Strangle @ $12.625 S- Low BEP = 110 - 12.625 = $97.375 88 100 112 124 136 148 160 172 184/196 208 High BEP = 185 + 12.625 = $197.625 $(2.00) Maximum loss = $1,262.50 per contract $(4.00) - - Long Call Long Put Value of Strangle at Various Expiration Prices $(6.00) Long Strang le Price $ 75.00 $ 100.00 $ 125.00 $ 150.00 $ 175.00 $ 200.00 $ 225.00 $(8.00) V(Call) $ (6.50) $ (6.50) $ (6.50) $ (6.50) $ (6.50) $ 8.50 $ 33.50 V(Put) $ 28.88 $ $(10.00) 3.88 $ (6.13) $ (6.13) $ (6.13) $ (6.13) $ (6.13) V(Strangle) $ 22.38 $ (2.63) $ (12.63) $ (12.63) $ (12.63) $ 2.38 $ 27.38 $(12.00) Between the strike prices, both options are OTM, and you therefore suffer the $(14.00) maximum loss. As you fall below the lower strike (or rise above the upper strike), you start to regain some of your premium. Once you are outside the BEP (either low or high), your position becomes profitable. In this way the strangle is similar to the straddle. However, because of the differences between the strike prices, it takes a larger swing in the price of the underlying before the strangle achieves profitability.Calls Puts Bid Ask Strike Bid Ask Strangle using options on YZA stock 139.00 139.06 YZA Oct You wish to go long one YZA Oct 90/210 strangle. 65.88 66.50 75.00 1.06 1.25 61.25 61.88 80.0 1.25 1.44 1. What will it cost to purchase one YZA 90/210 strangle? 56.75 57.38 85.00 .6 1.81 52.50 53.13 90.00 2.19 2.44 48.38 49.00 95.00 3.00 3.38 2. What will be the break-even points for your position? 44.38 45.00 100.00 3.75 4.13 39.88 40.63 105.00 ..50 4.88 36.68 37.13 110.00 5.75 6.13 3. What is the value of your position if YZA rallies to $225? 32.75 33.50 115.00 7.13 7.50 29.63 30.38 120.00 8.88 9.13 26.50 27.25 125.00 10.75 11.25 4. What is the value of your position if YZA closes at $212? 23.75 24.50 130.00 12.75 13.25 21.00 21.75 135.00 15.13 15.63 18.75 19.25 140.00 17.75 18.25 5. What is the value of your position if YZA closes at 75? 16.75 17.25 145.00 20.50 21.25 14.75 15.25 150.00 23.38 24.13 13.25 13.8 155.00 27.00 27.63 11.75 12.00 160.00 30.38 31.00 10.13 10.75 165.00 33.88 34.50 9.13 9.25 170.00 37.75 38.38 8.00 8.38 175.00 41.63 42.25 6.88 7.25 180.00 45.50 46.13 6.13 6.50 185.00 49.75 50.38 5.38 5.75 190.00 54.00 54.63 4.63 5.00 195.00 58.25 58.88 4.13 4.50 200.00 62.88 63.50 3.38 3.75 210.00 71.88 72.88 2.44 2.81 220.00 81. 13 82.13 1.88 2.13 230.00 90.75 91.75 1.44 1.69 240.00 100.50 101.50 1.06 1.31 250.00 110.50 111.50 0.81 1.06 260.00 120.50 121.50 0.63 0.88 270.00 130.50 131.50Short Strangle Short Strangle Composition: Short a put with a low strike price and short a call with a high strike price, same expiration $36.00 Max Profit: credit received from sale of strangle $31.00 Max Loss: unlimited to the upside, limited to the price $26.00 of the stock on the downside $21.00 Short Call BEP: There are 2 - low strike minus credit & Short Put high strike plus credit $16. 00 Short Strangle $11.00 Short Strangle on S&P 500 Index (stock at $965) Short 1 SPX Nov 950 put @ $16.625 $6.00 Short 1 SPX Nov 980 call @ $20.00 = Short 1 SPX Nov 950/980 Strangle @ $36.625 $1.00 Low BEP = 950 - 36.625 = $913.375 $(4.00) 890 1920 950 980 1,010 1,040 High BEP = 980+ 36.625 = $1,016.625 Maximum Profit = $3,662.50 per contract Like with the short straddle, the short strangle is profitable in markets of low volatility, when prices move very little. Wide swings can Value of Strangle at Various Expiration Prices quickly cause a short strangle to turn from a profit to a loss, so monitoring your position is imperative! Price $ 905.00 $ 925.00 $ 945.00 $ 965.00 $ 985.00 $ 1,005.00 $ 1,025.00 V(Call) $ 20.00 $ 20.00 $ 20.00 $ 20.00 $ 15.00 $ (5.00) $ (25.00) V(Put) $ (28.38) $ 8.38) $ 11.63 $ 16.63 $ 16.63 $ 16.63 $ 16.63 V(Straddle) $ (8.38) $ 11.63 $ 31.63 $ 36.63 $ 31.63 $ 11.63 $ (8.38)Calls Puts Bid Ask" Strike Bid Ask Strangle using options on EFG 160.13~ EFG+ stock 160.38 Oct 82.50~ 83.50~ 80.00~ 1.25 ~ 1.50~ You wish to short three contracts for the Oct EFG 120/200 strangle.~ 78.00 79.00~ 85.00~ 1.63~ 1.88 ~ 73.63 74.63 ~ 90.00 2.13 + 1. What will you receive for shorting three Oct EFG 120/200 strangles?" 2.50 69.50~ 70.50~ 95.00~ 3.00 3.38 65.25 66.25~ 100.00 3.63 + 4.00~ 61.38 ~ 62.38~ 105.00 4.75 5.13~ 2. What will be the break-even points for your position?~ 57.63 58.63~ 110.00 5.75 6.25~ 54.00 55.00~ 115.00 7.13- 7.63 50.13 ~ 51.13 120.00 9.13 + 9.25 ~ 3. What is the value of your position if EFG rallies to $195?~ 46.63 ~ 47.63~ 125.00 10.00~ 10.50 43.38~ 44.38 ~ 130.00 11.63 12.38 40.63~ 41.63~ 135.00 13.50~ 14.25~ 4. What is the value of your position if EFG closes at $207?~ 37.75 38.75~ 140.00 15.63~ 16.38 34.88 ~ 35.88~ 145.00 17.75~ 18.50~ 32.50 33.50~ 150.00 20.13~ 21.13 5. What is the value of your position if EFG closes at 95?~ 30.13~ 31.13 155.00 22.63 23.63 27.88 28.88 160.00 25.25 26.25 25.88~ 26.88~ 165.00 28.25~ 29.25~ 24.00 25.00~ 170.00 31.25 32.25 21.63 22.63 175.00 34.00 35.00 20.00~ 20.75~ 180.00 37.13~ 38.13 18.25 19.00~ 185.00 40.50 41.50 16.25 ~ 17.00 190.00 43.38 44.38 14.75 ~ 15.50~ 195.00 46.88~ 47.88 13.63~ 14.38~ 200.00 50.75~ 51.75Problems: L Nondirection Dependent Strategies -- Straddles and Strangles~ Straddles and Strangles can be profitable regardless of which way the underlying moves -- profitability is not dependent on the direction of the underlying. ~ Depending on whether you are long or short the position, profitability may not depend upon a move at all. ~ This does not by any means make them "fool proof" strategies -- both can be expensive, and extremely risky, if neglected.~ Long straddles and long strangles are similar in their risk/reward approach in that both have limited risk and unlimited reward potential. Short straddles ~ and short strangles share the trader's desire for the underlying to remain stable because trading these from the short side is profitable when little oreStraddles? |_ Think of straddling a low fence. where you have one leg on either side. Before you can run you must decide which direction is best. When using a straddle? strategy for options, you must make the same decision once the underlying starts to move.? A market in which the trader expects the underlying to move sharply in either direction offers the opportunity to take a long straddle position. A long straddle? involves purchasing both a call and a put with the same strike price and expiration date. Adequate time prior to expiration is required (a month) to allow time for the market to make a substantial move. ? A straddle with only days to go until expiration can also be quite profitable. However, these short-dated straddles carry much more risk, and thus you must? be sure about your market assessment, as there will be little time for you to react to changes that go against you. This amount of time is in line with ? the investment you will have to risk, and thus the expected amount the stock will have to move for the position to be protable. ? ----LongCaI . Long Ful Long straddle Long Straddle? Composition: Long a call and a put with ? the same strike and expiration0 Max Profit: Unlimited to the upside, limited? by the price of the stock to the downside? Max Loss: Debit incurred to buy straddle? BEP: There are 2 -- strike minus debit 8:? strike plus debit? Delia: long call = long delta.? long put = short delta? Assuming the strike is at the price of the ? underlying, delta of position will be zerO? If constructed away from the price of the? stock, position will be long or short? net delta? Long Straddle Long Straddle on Dow Jones Index (stock at $80) $8.00 Long 1 DJX Dec 80 call @ $3.625 (delta = +50) Long 1 DJX Dec 80 put @ $2.50 (delta = -50) $6.00 = Long 1 DJX Dec 80 Straddle @ $6. 125 (delta = 0) Low BEP = 80 - 6.125 = $73.875 $4.00 High BEP = 80 + 6. 125 = $86.125 $2.00 Maximum loss = $612.50 per contract - Long Call $- . Long Put Value of Straddle at Various Expiration Prices 70 72 74 76 78, 80 82/ 84 86 88 90- - Long Straddle $ (2.00) Price $ 65.00 $ 70.00 $ 75.00 $ 80.00 $ 85.00 $ 90.00 $ 95.00 V(Call) $ (3.63) $ (3.63) $ (3.63) $ (3.63) $ 1.37 $ 6.37 $ 11.37 $(4.00) V(Put) $ 12.50 $ 7.50 $ 2.50 $ (2.50) $ (2.50) $ (2.50) $ (2.50) V(Straddle) $ $ 3.87 $ (1.13) $ (6.13) $ (1.13) $ 3.87 $ 8.87 $ (6.00) This position will show a profit if the price of the underlying moves sharply in either direction. $(8.00) For this particular straddle, a profit is incurred when the underlying falls below $73.875 or when it rises above $86. 125. The maximum loss is incurred at the strike price. At any price between the BEPs other than the strike price, you will be able to recoup some of your investment by selling the ITM option. For example, if the underlying is at $85 at expiration, the call is ITM by $1.375 per option ($137.50 per contract), so it can be sold. This would reduce your loss to $1.125 per option ($112.50 per contract). The put will be OTM and will expire worthless.Calls Puts Bid Ask Strike Bid Ask 76.88~ 76.94 OPQ~ 1. Straddle using options on OPQ stock Sep 36.88 ~ 37.88 ~ 40.00 0.06 + 0.19~ You wish to go long the September 75 straddle.~ 34.50~ 35.50 42.50 There are 28 days left in the September cycle.~ 0.06 + 0.25~ 32.13 ~ 33.13~ 45.00~ 0.13~ 0.31 - 29.75~ 30.75+ 47.50~ 0.25~ 0.44~ 1. What would it cost you to purchase one Sep 75 straddle based ~ 27.38 ~ 28.38 50.00 0.31 + on market prices (at left)?" 0.50~ 22.88 ~ 23.88 55.00~ 0.81 - 1.00~ 18.75~ 19.50 60.00~ 1.38 ~ 1.63~ 14.75 ~ 15.50~ 65.00~ 2.38 2.75- 2. What are the break-even points for your position?~ 11.25 ~ 12.00~ 70.00~ 3.75 4.13 ~ 8.50 8.88 ~ 75.00~ 5.75~ 6.25 ~ 5.88 ~ 6.38~ 80.00~ 8.25~ 3. What is the value of your position if OPQ rallies to $95?~ 8.75~ 4.00 4.50~ 85.00~ 11.38 ~ 11.88 + 2.56~ 3.00~ 90.00~ 14.75- 15.50 1.69 1.94 + 95.00~ 18.75~ 19.50 4. What is the value of your position if OPQ closes at $87?~ 0.88 ~ 1.13 ~ 100.00 23.13 - 24.00 0.44 ~ 0.69~ 105.00 27.75 ~ 28.63 0.25+ 0.44+ 110.00 32.75 - 33.63 ~ 5. What is the value of your position if OPQ closes at $55?~ Dec+ 34.00~ 35.00~ 45.00 1.13 ~ 1.38 ~ 29.88 ~ 30.88 50.00~ 1.88 ~ 2.13- 25.88 + 26.88 55.00 2.81 3.13~ 22.25~ 23.25 60.00~ 4.00~ 4.38~ 19.00~ 19.75 ~ 65.00 5.38 ~ 5.88 ~ 15.88 ~ 16.88 ~ 70.00~ 7.38~ 7.88~ 13.13~ 13.88 75.00~ 9.50 10.00~ 10.88 ~ 11.38 80.00 11.88 ~ 12.63 8.75~ 9.25~ 85.00~ 14.75 - 15.50 6.88~ 7.38 ~ 90.00~ 17.88 ~ 18.63 ~ 4.63~ 100.00 25.13 ~ 26.13 ~Short Straddle Short Straddle on Nasdaq 100 Index (stock at $1140) $35.00 Short 1 NDX Oct 1140 call @ $15.00 (delta = -50) Short 1 NDX Oct 1140 put @ $15.50 (delta =+-50) $30.00 = Short 1 NDX Oct 1140 Straddle @ $30.50 (delta = 0) $25.00 Low BEP = 1140 - 30.50 = $1, 109.50 High BEP = 1140 + 30.50 = $1, 170.50 $20.00 Maximum profit = $3,050.00 per contract $15.00 Short Call . Short Put $10.00 Value of Straddle at Various Expiration Prices - Short Straddle $5.00 Price $ 1, 110.00 $ 1, 120.00 $ 1, 130.00 $ 1, 140.00 $ 1, 150.00 $ 1, 160.00 $ 1, 170.00 V(Call) 15.00 $ 15.00 $ 15.00 $ 15.00 $ 5.00 $ (5.00) $ (15.00) S- V(Put) (14.50) $ (4.50) $ 5.50 $ 15.50 $ 15.50 $ 15.50 $ 15.50 1,090 1,110 .1,130 1,150 1,170 1,190 V(Straddle) $ 0.50 $ 10.50 $ 20.50 $ 30.50 $ 20.50 $ 10.50 $ 0.50 $ (5.00) This position will show a profit if the price of the underlying remains close to the strike price. $(10.00) For this particular straddle, a profit is incurred when the underlying is below $1, 170.50 but above $1, 109.50. The maximum loss is limited to the stock price on the downside, but unlimited on the upside. If the underlying is anywhere between the BEPs at expiration, the position earns a profit. For example, if at expiration the Nasdaq 100 closes at $1, 160, the put is OTM (for the holder), but the call is ITM (for the holder) by $20, and will be exercised. Thus your profit will be 30.50 - 20 = $10.50 per option, or $1,050 per contract
