For all the questions, assume that for options, you can ONLY buy at the ask price and sell at the bid price. Assume there are no transaction costs, such as broker fees.
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1. Five parts
a. What is the total cost of buying 10 contracts of September 2020 call options with an exercise price of $277.50?
b. What is the return on the above call options strategy if the stock price at the maturity of the option is $275?
c. What is the return on the above call options strategy if the stock price at the maturity of the option is $280?
d. What is the return on buying 100 shares of the stock at the asking price on April 24, 2020, and selling the stock at $275 at the expiration of the option in September 2020?
e. What is the return on buying 100 shares of the stock at the asking price on April 24, 2020, and selling the stock at $280 at the expiration of the option in September 2020?
2. Draw the P/L diagram for a covered call strategy using the 282.50 exercise price option(s). Assume a stock price of 278.10 on April 24, 2020. Indicate critical numbers on the axes, such as the prices of the stock at which the strategy is profitable. Give one example of how this strategy could be used.
For all the questions, assume that for options, you can ONLY buy at the ask price and sell at the bid price. Assume there are no transaction costs, such as broker fees. ___________________________________________________________________ 1. Five parts a. What is the total cost of buying 10 contracts of September 2020 call options with an exercise price of $277.50? b. What is the return on the above call options strategy if the stock price at the maturity of the option is $275? c. What is the return on the above call options strategy if the stock price at the maturity of the option is $280? d. What is the return on buying 100 shares of the stock at the asking price on April 24, 2020, and selling the stock at $275 at the expiration of the option in September 2020? e. What is the return on buying 100 shares of the stock at the asking price on April 24, 2020, and selling the stock at $280 at the expiration of the option in September 2020? 2. Draw the P/L diagram for a covered call strategy using the 282.50 exercise price option(s). Assume a stock price of 278.10 on April 24, 2020. Indicate critical numbers on the axes, such as the prices of the stock at which the strategy is profitable. Give one example of how this strategy could be used.