0:T. Assignment 2... +966 55 670 8009 1. Fahad gets into a long European call option to purchase one share of stock X for $95 that costs $5 and is held until maturity. Under what circumstances will...

I need the answer as soon as possible0:T.<br>Assignment 2... +966 55 670 8009<br>1. Fahad gets into a long European call option to purchase one<br>share of stock X for $95 that costs $5 and is held until<br>maturity. Under what circumstances will Fahad make a<br>profit? Under what circumstances will the option be<br>exercised? Draw a diagram illustrating how the profit from<br>a long position in the option depends on the stock price at<br>maturity of the option.<br>2. Assume that Sara gets into a short European put option to<br>sell one share of stock Y for $66 that costs $7 and is held<br>until maturity. Under what circumstances will Sara, the<br>seller of the option (the party with the short position), make<br>a profit? Under what circumstances will the option be<br>exercised (from long position perspective)? Draw a<br>diagram illustrating how the profit from a short position in<br>the option depends on the stock price at maturity of the<br>option.<br>3. Consider a call option contract to purchase 1000 shares<br>with a strike price of $80 and maturity in four months.<br>Explain how the terms of the option contract change when<br>there is:<br>a) A 11% cash dividend<br>b) A 5-for-1 stock split<br>4. What is the initial margin requirement for an investor who<br>shorts (writes or sells) four naked call option contracts with<br>option price of $4, strike price of S50, and stock price of<br>$47?<br>5. What is the difference between a strangle and a straddle?<br>6. Call options on a stock are available with strike prices of<br>$15, $17.50 and $20, and expiration dates in 3 months.<br>Their prices are $4, $2, and $12, respectively. Explain how<br>the options can be used to create a butterfly spread.<br>7. A call option with a strike price of $100 costs $5. A put<br>option with a strike price of $85 costs $4.<br>a. Explain how a strangle can be created from these two<br>options.<br>b. What is the cost of this strategy?<br>c. When should I exercise my options?<br>d. For what range of future stock prices would the<br>strategy lead to a gain and what is the maximum gain<br>you can receive? Prove your answer by providing an<br>example.<br>e. For what range of future stock prices would the<br>strategy lead to a loss and what is the maximum loss<br>you could sustain? Prove it by giving an example.<br>8. Suppose that put options on a stock with strike prices $66<br>

Extracted text: 0:T. Assignment 2... +966 55 670 8009 1. Fahad gets into a long European call option to purchase one share of stock X for $95 that costs $5 and is held until maturity. Under what circumstances will Fahad make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of the option. 2. Assume that Sara gets into a short European put option to sell one share of stock Y for $66 that costs $7 and is held until maturity. Under what circumstances will Sara, the seller of the option (the party with the short position), make a profit? Under what circumstances will the option be exercised (from long position perspective)? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option. 3. Consider a call option contract to purchase 1000 shares with a strike price of $80 and maturity in four months. Explain how the terms of the option contract change when there is: a) A 11% cash dividend b) A 5-for-1 stock split 4. What is the initial margin requirement for an investor who shorts (writes or sells) four naked call option contracts with option price of $4, strike price of S50, and stock price of $47? 5. What is the difference between a strangle and a straddle? 6. Call options on a stock are available with strike prices of $15, $17.50 and $20, and expiration dates in 3 months. Their prices are $4, $2, and $12, respectively. Explain how the options can be used to create a butterfly spread. 7. A call option with a strike price of $100 costs $5. A put option with a strike price of $85 costs $4. a. Explain how a strangle can be created from these two options. b. What is the cost of this strategy? c. When should I exercise my options? d. For what range of future stock prices would the strategy lead to a gain and what is the maximum gain you can receive? Prove your answer by providing an example. e. For what range of future stock prices would the strategy lead to a loss and what is the maximum loss you could sustain? Prove it by giving an example. 8. Suppose that put options on a stock with strike prices $66
Jun 08, 2022
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