The Question is;Buy 100 shares of stock and write one October 170 call contract. Hold the position until expiration. Determine the profits and graph the results. Iden- tify the breakeven stock price at expiration, the maximum profit, and the maximum loss. I need process

atives and Risk Management, 9th Edition.pdf (SA 245 IT, H 690 IT) positions are held to maturity. Therefore, you need Buying an at-the-money put has a greater return to produce a total of three graphs. Describe the potential than buying an out-ofthe-money put relationship between the long and short for each more be in the momeE profit equation. Also describe the relationship Appraise this statement. between the call graph and the put graph. Suppose that you wish to buy stock and protect yourself against a downside movement in its price. The following option prices were observed for a stock You consider both a covered call and a protective for July 6 of a particular year. Use this information in put. What factors will affect your decision? problems 10 through 15. Ignore dividendson the stock 3. You have inherited some stock from a wealthy rel The stock is priced at 165.13. The expirations are July ative. The stock had poor performance recently, and 17, August 21, and October 16. The continuously analysts believe it has little growth potential. You compounded risk free rates are 0.0503, 0.0535 and would like to write calls against the stock; however, 0.0571, respectively. The standard deviation is 0.21. the will stipulates that you must agree not to sell it Assume that the options are European. unless you need the funds for a personal financial emergency. How can you write covered calls and Puts Calls minimize the likelihood of exercise 4. We briefly mention the synthetic call, which Jul Aug Oc Jul Oct Strike Aug consists of stock and an equal number of puts. Assume that the combined value of the puts and 2.40 4.75 6.75 2.70 5.25 165 stock exceeds the value of the actual call by less than 9.00 3.25 5.75 170 0.80 the present value of the exercise price. Show how an arbitrage profit can be made. Note: Do not use the In problems 10 through 15, determine the profits for Show your point as it was data from the chapter. possible stock prices of 150, 155, 160, 165, 170, 175, and illustrated in the text for the synthetic put. 180. Answer any other questions as requested. Note: 5. A short position in stock can be protected by hold Your Excel spreadsheet Stratlyz9e.xls will be usefulhere ing a call option. Determine the profit equations for for obtaining graphs as requested, but it does not allow this position and identify the breakeven stock price you to calculate the profits for several user-specified t expiration and maximum and minimum profits asset prices. Itpermits youto specify one asset price and 6. A short stock can be protected by selling a put. a maximum and minimum. Use Stratlyz9exis to pro- Determine the profit equations for this position duce the graph for the range of prices from 150 to 180, and identify the breakeven stock price at expiration ne the profits for the prices of 150, 160, but determ and maximum and minimum profits Explain the advantages and disadvantages to a covered 180 by hand for positions held to expiration. For posi 7. tions closed prior to expiration, use the spreadshe call writer of closing out the position prior to expiration. BSMbin9exls to determine the option price when the 8. Explain the considerations facing a covered call position is closed; then calculate the profit by hand. writer regarding the choice of exercise prices 10. Buy one August 165 call contract. Hold it until the 9. The three fundamental profit equations for call, puts, options expire. Determine the profits and graph the and stock are identified symbolically in this chapter as results. Then identify the breakeven stock price at expiration. What is the maximum possible loss on NPIM ax(o, x -ST) P this transaction Repeat problem 10, but close the position on August 1. Use the spreadsheet to find the profits gle graph showing both the long and Prepare a