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May you explain all parts, thanks Suppose that you consider purchasing a European call option on a single share of Wal-Mart stock. Wal-Mart's current share
May you explain all parts, thanks
Suppose that you consider purchasing a European call option on a single share of Wal-Mart stock. Wal-Mart's current share price is So=$30. The option has a strike price of K=$50 and expires next week. Do you think you would pay a high or a low price for this option? Would you pay more or less if (a) the share price was higher, say So=$100? (b) the strike price was lower, say K=$30? (c) the stock price volatility was higher? Now, explain how the price of a put option that has the identical features with the call option would change if: (d) the share price was higher, say So=$100? (e) the strike price was lower, say K=$30? (f) the stock price volatility was higher Suppose that you entered into a 1-year European option contract 11 months ago. With 1 month remaining to the contract's expiry, you observe that the price of the stock has increased substantially over the 11 month period. Would you be happy about this price increase if: (a) the contract is a call option and you have a short position? (b) the contract is a put option and you are the seller of this contract? (c) the contract is a call option and you have a long position? (d) the contract is a put option and you are the buyer of this contractStep by Step Solution
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