Question
Question 2 (10 Marks) Consider the following information on the options available on stock ABC. You intend to write one Jan maturity call option on
Question 2 (10 Marks)
Consider the following information on the options available on stock ABC. You intend to write one Jan maturity call option on company ABCs stock with exercise price $105 and write one Jan maturity put option on the same underlying asset with strike price $100. The information of the options on the stock of company ABC is as follows:
|
| Call | Put | ||
Strike | Expire Date | Volume | Price | Volume | Price |
90 | Jan | 45 | 14.875 | 206 | 0.125 |
95 | Jan | 216 | 9.625 | 741 | 0.25 |
95 | Feb | 10 | 12.375 | 261 | 1.875 |
100 | Jan | 911 | 5.25 | 2021 | 0.75 |
100 | Apr | 29 | 11 | 319 | 4.75 |
100 | Jul | 5 | 13.375 | 225 | 6.625 |
105 | Jan | 3109 | 1.75 | 2357 | 2.25 |
105 | Feb | 358 | 5 | 339 | 5.25 |
105 | Apr | 231 | 7.75 | 527 | 6.5 |
110 | Jan | 1986 | 0.375 | 80 | 5.75 |
110 | Feb | 1025 | 2.9375 | 27 | 7.5 |
110 | Apr | 421 | 5.375 | 21 | 9.25 |
Graph the payoff as well as the profit/loss of this portfolio at option expiration. (2 Marks)
At what price range will you break even on your investment based on the payoff? (3 Marks)
What will be the payoff and profit/loss on this portfolio if company ABC trades at $102 on the option maturity date? (3 Marks)
Given the portfolio that you have constructed, what is most likely your view of the future for the price of ABCs stock? (2 Marks)
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