A collar is established by buying a share of stock for $46, buying a 6-month put option with exercise price $43, and writing a 6-month call option with exercise price $49. On the basis of the volatility of the stock, you calculate that for a strike price of $43 and expiration of 6 months, N(d₁) = .6974, whereas for the exercise price of $49, N(d₁) = 0.6504. a. What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Collar gain by .05 b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in your response.) Delta of the portfolio approaches b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign in your response.) Delta of the portfolio approaches

A collar is established by buying a share of stock for $46, buying a 6-month put option with exercise price $43, and writing a 6-month call option with exercise price $49. On the basis of the volatility of the stock, you calculate that for a strike price of $43 and expiration of 6 months, N(d₁) = .6974, whereas for the exercise price of $49, N(d₁) = 0.6504. a. What will be the gain or loss on the collar if the stock price increases by $1? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Collar gain by .05 b-1. What happens to the delta of the portfolio if the stock price becomes very large? (Omit the "$" sign in your response.) Delta of the portfolio approaches b-2. What happens to the delta of the portfolio if the stock price becomes very small? (Omit the "$" sign in your response.) Delta of the portfolio approaches

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A collar is established by buying a share of stock for $64, buying a 6-month put option with exercise price $58, and writing a 6-month call option with exercise price $70. On the basis of the volatility of the stock, you calculate that for a strike price of $58 and expiration of 6 months, N(d1) = 0.7116, whereas for the exercise price of $70, N(d1) = 0.6443. Required: a. What will be the gain or loss on the collar if the stock price increases by $1? b. What happens to the delta of the portfolio if the stock price becomes very large? c. What happens to the delta of the portfolio if the stock price becomes very small? Complete this question by entering your answers in the tabs below. Required A Required B Required C What will be the gain or loss on the collar if the stock price increases by $1? Note: Round your answer to 2 decimal places. Collar of
A collar is established by buying a share of stock for $54, buying a 6-month put option with exercise price $47, and writing a 6-month call option with exercise price $61. On the basis of the volatility of the stock, you calculate that for a strike price of $47 and expiration of 6 months, N(d1) = 0.7298, whereas for the exercise price of $61, N(d1) = 0.6374. Required: What will be the gain or loss on the collar if the stock price increases by $1? What happens to the delta of the portfolio if the stock price becomes very large? What happens to the delta of the portfolio if the stock price becomes very small?
A collar is established by buying a share of stock for $50, buying a 6-month put option with exercise price $45, and writing a 6-month call option with exercise price $55. On the basis of the volatility of the stock, you calculate that for a strike price of $45 and expiration of 6 months, N(d1) = .60, whereas for the exercise price of $55, N(d1) = .35.a. What will be the gain or loss on the collar if the stock price increases by $1?b. What happens to the delta of the portfolio if the stock price becomes very large?c. What happens to the delta of the portfolio if the stock price becomes very small?
A collar is established by buying a share for 50, buying a 6-month put option with exercise price 45, and writing a call option with exercise price 55. On the basis of the volatility of the stock, you calculate that at a strike price of 45 and expiration of 6 months, N(d1) =0.6 whereas for the exercise price of 55, N(d1) = 0.35 What will be the gain or loss on the collar if the stock price increases by 1? What happens to the delta of the portfolio if the stock price becomes very large?
Assume that you hold a call option on stock A. The call has a strike price of 50 and expires in 6 months. Stock A pays no dividends. 1. What is the payoff from the call if stock A is trading at 57 in 6 months? 2. What is the payoff from the call if stock A is trading at 45 in 6 months? 3. Draw a payoff diagram that shows the payoff of the call as a function of the underlying stock price.
The Black-Scholes model is used to value call options on the stock of National Co. The following information was identified:· The share price is P43.· The option matures in 6 months· The risk-free rate is 2%.· Price of the option is at P43.What is the exponent of “e” for in computing the value of the call option using the Black-Scholes model?
Assume that you have shorted a call option on Intuit stock with a strike price of $40. The option will expire in exactly three months' time. a. If the stock is trading at $55 in three months, what will you owe? b. If the stock is trading at $35 in three months, what will you owe? c. Draw a payoff diagram showing the amount you owe at expiration as a function of the stock price at expiration. a. If the stock is trading at $55 in three months, what will you owe? If the stock is trading at $55 in three months, you will owe $ (Round to the nearest dollar.)
Suppose that both a call option and a put option have been written on a stock with an exerciseprice of $40. The current stock price is $42, and the call and put premiums are $3 and $0.75,respectively. Calculate the profit to positions of both the short call and the long put with an expiration day stock price of $43.
Suppose that a June call option to buy a share for $65 costs $3.5 and is held until June. Under what circumstances will the holder of the option make profit Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.
Assuming that a September put option to buy a share for $100 costs $4.50 and is held until September. Under what circumstances will the holder of this option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.
Both a call and a put currently are traded on stock XYZ; both have strike prices of $50 and expirations of 6 months.a. What will be the profit to an investor who buys the call for $4.8 in the following scenarios for stock prices in 6 months? (i) $40; (ii) $45; (iii) $50; (iv) $55; (v) $60. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place.) stock price profit i. $40 ii. $45 iii. $50 iv. $55 v. $60 b. What will be the profit to an investor who buys the put for $7.5 in the following scenarios for stock prices in 6 months? (i) $40; (ii) $45; (iii) $50; (iv) $55; (v) $60. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place.) stock price profit i. $40 ii. $45 iii. $50 iv. $55 v. $60
3. A stock sells for $110. A call option on the stock has an exercise price of $105 and expires in 43 days. If the interest rate is 0.11 and the standard deviation of the stock’s return is 0.25. a) Calculate the call using the Black-Scholes model b) What would be the price of a put with an exercise price of $140 and the same time until expiration? c) How does an increase in the volatility and interest rate changes affect the underlying stock’s return on an option’s value? Explain.

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