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##### The following prices were observed for a stock for July 6

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Question;The following prices were observed for a stock for July 6 of a particular year. Use this information in problems 5a through 5d. Ignore dividends on the stock. The stock is priced at 165.125. The expirations are July 17, August 21, and October 16. The continuously compounded risk-free rates are.0503,.0535,.0571, respectively. The standard deviation is.21.Assume the Options are europeanCalls PutsStrike Jul Aug Oct Jul Aug Oct165 2.69 5.25 8.13 2.38 4.75 6.75170.813 3.25 6 5.75 7.5 9In problems 5a through 5d determine the profits for possible stock prices of 150, 160, 170, and 1805a. Buy one August 165 call contract. hold until the options expire. Determine the profits. Then identify the break-even stock price at expiration. What is the max possible loss on the transaction?5b. Repeat problem a but close the position on August 21. Calculate the profit when the stock price on Aug 21 is 160.5c. Buy one October 165 put contract. Hold until the options expire. Determine the profits and identify the break-even stock price at expiration. What are the max possible gains and loss on this transaction?5d. Buy 100 shares of stock and write one October 170 call contract. Hold the position until expiration. Determine the profits and identify the break-even stock price at expiration, the max profit, and the max loss.

Paper#49777 | Written in 18-Jul-2015

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