Given the following information, answer the following sentences. What is the tim

Question

Given the following information,

answer the following sentences.

What is the time premium paid for the put? Round your answer to the nearest dollar.
$  

If an investor establishes a naked call position, what amount is received? Round your answer to the nearest dollar.
$  

What is the most the buyer of the call can lose? Round your answer to the nearest dollar.
$  

What is the maximum amount a short seller (of the stock) can lose?

At the expiration of the options (i.e., after six months have elapsed), the price of the stock is $89.

What is the profit (loss) from buying the stock? Round your answer to the nearest dollar.

$  

What is the profit (loss) from buying the call? Round your answer to the nearest dollar.

$  

What is the profit (loss) from writing the call covered? Round your answer to the nearest dollar.

$  

What is the profit (loss) from selling the put? Round your answer to the nearest dollar.

$  

At expiration, what time premium is paid for the call? Round your answer to the nearest dollar.
$  

price of a stock $97 strike price of a six-month call $96 market price of the call $6 strike price of a six-month put $96 market price of the put $5

Explanation / Answer

1)time premium paid for the put=market price of the put-intrinsic value of put

intrinsic value of put=max(strike price-price of a stock,0)=max(96-97,0)=0

market price of the put=$5

time premium paid for the put=5-0=$ 5.

2) The amount investor pays if establishes a naked call position=market price of the call=$6

3)the most the buyer of the call can lose=premium of call=market price of the call=$6.

4)maximum amount a short seller (of the stock) can lose=price of a stock=$97

5)At the expiration of the options (i.e., after six months have elapsed), the price of the stock is $89.

a) profit (loss) from buying the stock=$89-$97=-$ 8

b)profit (loss) from buying the call=payoff-price of call=max(89-96,0)-$6=-$6

c) profit (loss) from writing the call covered=profit on call written+profit on long stock=market price of the call-max(89-96,0)+(89-97)=$6-$0-$8=- $2

d) the profit (loss) from selling the put=price of put-payoff of put=$5-max(96-89,0)=$5-$7=-$2

e) time premium is paid for the call=market price of the call-intrinsic value of call

time premium is paid for the call = $6 - max(89-96,0)=$6 -$0=$ 6

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