Use the table below to answer the following questions. Option Call Put Strike 60

Question

Use the table below to answer the following questions. Option Call Put Strike 60 40 American American Expiration 3 Da 3 Da Premium S0.25 S0.12 16. Your portfolio consist of you taking a long position in both the call (K-60) and the put (K=40) This portfolio is consistent with you expecting a. b. c. the stock price to be volatile the stock price being stable the stock price only increasing 17. When would you execute the call? a. b. c. If the price tomorrow equals 70 If the price 3 days from now equals 60 If the price tomorrow equals 37. 18. When would your option portfolio be worthless? a. 40

Explanation / Answer

16. a. the stock price to be volatile.

Since we bought 60 call and 40 put we expect price to be going above 60 or below 40. So we expect price to be volatile.

17. a. When the price tomorrow is 70.

Since this is an American option it can be exercised any time before expiration too. So we will exercise call when the price tomorrow is 70 since its higher then the strike price 60.

18. a. 40<Stock price<60

If the price is higher than 40 we could not exercise put option and since price is lower than 60 we couldn't exercise call option. So the portfolio will be worthless if price is between 40 & 60.

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.