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You purchased a put option on Facebook with strike price of $200. If at expiration date, stock price was $250, then we can refer to
- You purchased a put option on Facebook with strike price of $200. If at expiration date, stock price was $250, then we can refer to this put option as:
- In the money
- At the money
- Out of the money
- None of the above ------------------------- Q2) Suppose that you purchase a May put option on Facebook with a strike price of $50 that costs $5 and is held until May. Under what circumstances will the option make a gain or loss? Under what circumstances will the option be exercised? Draw a diagram showing how your profit, from a long position perspective, in the option depends on the stock price at the maturity of the option. Make sure to show the breakeven point(s). ------- Q3) A stock price is currently traded at $70. Over each of the next two 3-month periods it is expected to go up by 15% or down by 15%. The risk-free interest rate is 8% per annum with continuous compounding and the strike price is $80. Using the binomial tree model to price call options, what is the value of a 1-year European call option? ---- Q4) Under what conditions will you use bull spread strategy, bear spreads strategy, or straddle strategy? What is the advantage and/or disadvantage of each strategy, if there is any?
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