7(a)-7(d) based on the following. 7(a) Will call buyer exercise the call when ma
ID: 2620152 • Letter: 7
Question
7(a)-7(d) based on the following. 7(a) Will call buyer exercise the call when market price on july 19 is $902 Please answer yes or mo Suppose you write a IBM call which was sold for $7.00 on Apr 9 2013 with exercise price X-$110, on Expiration date July 19,2013, given different possibilities of market prices, please answer. Hint: Profit/ loss is not payoff. Each put is 100 shares. Will put ST MarketbuyerDollar to put 19 July 2013 (yes or no) writer price of IBM exerciseprofit/loss the put? 100 110Explanation / Answer
Writer of the Call- Call writing is a bearish strategy, when investor expects that particular stock or market will come down, he writes the call to receive the premium and if call comes down or becomes zero, he gets to keep the premium that is his maximum profit.
Answer(7a): No, Call buyer will not exercise the Call when market price of Call is $90 because he will get loss as the premium of Call will come down.
Yes, Call buyer will exercise the Call when market price on July 19 is $130 because he bought the call when market price was $110 and now the market price is $130, he will get profit because premium of Call will also increase.
Answer(21): Total profit for Writer of the Call is $7 * 100 = $700. (100 is the contract size)
He writes the call when exercise price was $110 now price is $100, Underlying stock has come down, writer of the Call will keep the premium that is his maximum possible profit. His profit is limited to the premium, he receives.
Answer(22): Writer writes the Call when market price was $110 so Total Loss for Call writer when market price is $140 is $30 (140-110) but he received premium of $7 that will be deducted from loss; 30-7 = 21
21*100 = $2100
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