The strikes and prices for 3-month put options available for…
The strikes and prices for 3-month put options available for trading are as follows: Strike 50 55 60 Price 3 4 5 A trader uses these options to create a butterfly. For what two values of the spot price at maturity will the trader break even?
Read DetailsThe price of a European put expiring in nine months with a s…
The price of a European put expiring in nine months with a strike price of $135 is $3. The underlying stock price is $142. A dividend of $0.50 is expected in two months and again in five months. The term structure of risk-free interest rates is: 2%, 2.05%, 2.08%, for two-, five-, and nine-month maturities, respectively. Which of the strategies below is an arbitrage if the corresponding call price is $4?
Read DetailsThe price of a stock is $21. Consider put and call options (…
The price of a stock is $21. Consider put and call options (European style) on this stock with the same maturity of six months. The put option has a strike of $15 and is quoted at $1.50 per share. The call option has a strike of $25 and is quoted at $2 per share. An investor uses the following strategy: short 200 shares, long 2 call options (each on 100 shares) and short 2 put options (each on 100 shares). For which of the ranges below of the stock price at maturity will the investor incur a loss?
Read DetailsA short four-month forward contract was negotiated three mon…
A short four-month forward contract was negotiated three months ago with a delivery price of $40. Its current price is $42. The term-structure of risk-free interest rates (with continuous compounding) is flat at 3%. What is the current value of the short forward contract?
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