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Quetion 4 (25 marks) Consider an option selling for $4 in which the exercise price is $30 and the price of the underlying is $25.
Quetion 4 (25 marks) Consider an option selling for $4 in which the exercise price is $30 and the price of the underlying is $25. (e) Determine the value at expiration and the profit for the buyer under the following outcomes if the transaction was a call option: i. The price of the underlying at expiration is $33 (2 marks) ii. The price of the underlying at expiration is $24 (2 martes) (b) Decermine the value at expiration and the profit for the buyer under the following outcomes if the transaction was a put option. i. The price of the underlying at expiration is $40 (2 marks) ii. The price of the underlying at expiration is $22 (2) martis) (C) Determine the following i. The maximum profit to the buyer (maximum loss to the seller) (3 marks) fi. The maximum profit to the seller (maximum loss to the buyer) (4 martas) (d) Jentify two main imestment attractions to put and call options. (4 marks) (c) Briclly explain the risks of engaging in stock option trading (6 marks)
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