Question
Please answer the following three questions: 6. The common stock of ABC INC. has been trading in a narrow price range for the past month,
Please answer the following three questions:
6. The common stock of ABC INC. has been trading in a narrow price range for the past month, and you are convinced it is going to stay in that range in the next three months. The current price of the stock is $100 per share and the three month call option with exercise price of $100 is $10. The price of the three month put option on ABC stock with an exercise price of $100 is $8.50. What would a simple option strategy to exploit your conviction about the stock price's future movements? What would be the break even points of your strategy? What would be the profit if stock price is $90 at the option expiration date?
7. The agricultural price support system guarantees farmers a minimum price for their output. Describe the program provision as an option. What kind of option? What is the underlying asset? The exercise price?
8. General Furnishings INC. has both call an put options on the CBOE. Both options have the same exercise price of $45 and the same expiration date. The options will expire in one year. The call is currently selling for $8 per share and the put is selling for $2 per share. The interest rate is 10%. What should the stock price of General Furnishing be in order to prevent arbitrage profit?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started