Billy Madison has bought an "at the money" put option on Altec stock. Billy's potential profit on the put option increases as the price of Altec stock declines. Group of answer choices True or false
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- Consider a stock with the current market price equal to So. A trader buys a call option on the stock with exercise price K1 and short sells a put with exercise price. The trader also buys a put option on the stock with K2 and short sells a call with K2, with K2>K1. Her position is equivalent to A) Borrowing the present value of K2 - K1 B) Holding the stock and borrowing the present value of K2 – K1 C) Lending the present value of K2 – K1 D) Holding the stock and lending the present value of K2 – K1An investor owns a stock that is currently valued at $45.80 a share. She is concerned that the stock price may decline so she just purchased a put option on the stock with an exercise price of $45. Which one of the following terms applies to the strategy she is using? Put-call parity. Covered call. Protective put. Straddle. O Strangle.Sarah purchases a call of CBA with exercise price $55 and sells a call of CBA with exercise price $50, both call options have the same expiration date. a. Draw the payoff diagram for her strategy as a function of the stock price at expiration. b. Draw the profit/loss diagram for this strategy as a function of the stock price at expiration. (hint: which option has a higher premium?).
- Consider two put options on the same stock with the same time to maturity. The strike price of Put A is less than the strike price of Put B. Which of the following is true? O It is possible for Put A to be in the money and Put B to be out of the money. O It is possible for Put A to be out of the money and Put B to be in the money. One of the options must be in the money. All of the other answers are correct.Suppose you own 200 shares in AAPL and would like to protect your position from an unexpected drop in stock price. The prudent way to protect yourself would be to: buy a call option short the stock c. buy a put optionWhich of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a future
- A speculator may write a put option on stock with an exercise price of $15 and earn a $3 premium only if he thought: a. the stock price would stay above $12. b. the stock volatility would increase. c. the stock price would fall below $18. d. the stock price would stay above $15. e. the stock price would rise above $18 or fall below $12.Saved a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit would be, and what the percentage return would be. (Enter "O" if there is no profit or return from not exercising the option. Round your answer to 2 decimal places.) Today's Stock In/Out of the Company Option Strike Price Money? (Click to select) Premium Exercise? Profit Return eBook АВС Call 10 $10.26 1.06 (Click to select) v АВС Put 10 $10.26 0.91 (Click to select) v Print (Click to select) ABC Call 25 $23.93 1.01 (Click to select) v АВС Put 25 $23.93 In the money (Click to select) v eferences 2.21 Out of the money b. Now suppose that time has passed and the stocks' prices have changed as indicated in the table below. Recalculate your answers to part a. In/Out of the Money? (Click to select) Today's Stock Company Option Strike…You use the Black-Scholes-Merton model for a put option on a stock. You calculate N(d1) = 0.60 and N(d2) = 0.56. a) What is the delta of the put option? Solution for A = -0.40 b) You short 100 put options. How would you hedge your delta exposure using the underlying stock? How many shares would you need to buy or sell?
- If an investor believes that the expected return is lower than the required rate of the return, the stock should be and he should . Group of answer choices overvalued, buy the stock. undervalued, not buy the stock overvalued, not buy the stock undervalued, buy the stock.speculator may write a put option on stock with an exercise price of $15 and earn a $3 premium only if he thought A-the stock price would rise above $18 or fall below $12. B-the stock price would stay above $15. C-the stock price would stay below $12. D-the stock price would fall below $18.Which of these statements is true? Multiple Choice Many people purchase stocks as they find comfort in the certainty for this safe form of investing. When people purchase a stock, they do not know what their return is going to be-either short term or in the long run. When people purchase a stock, they know the short-term return, but not the long-term return. When people purchase a stock, they know exactly what their dollar and percent return are going to be.