Exam 22: Option Contracts

Exhibit 22.7 Use the Information Below for the Following Problem(S) GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00. -Refer to Exhibit 22.7.What would the net value of a short straddle position be if the stock price at expiration is $35?

Exhibit 22.4 Use the Information Below for the Following Problem(S) Consider the following information on put and call options for Citigroup otrike Price Put Price Call Price \ 32.50 \2 .85 \1 .65 -Refer to Exhibit 22.4.A long straddle is an appropriate strategy if

The binomial option pricing model and the Black and Scholes model are similar because they are both discrete models.

A price spread (or vertical spread)involves buying and selling an option for the same stock and expiration date but with different exercise prices.

Exhibit 22.6 Use the Information Below for the Following Problem(S) The following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $60 per share, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%. -Refer to Exhibit 22.6.Calculate the possible prices of the stock at the end of one year.

In index options,the aggregate market takes the place of the individual stock issues being traded,as in stock options.

Exhibit 22.2 Use the Information Below for the Following Problem(S) XYZ CORP Exercise NYSE Date Price Price Clase Calls OCT 85 163/4 10111/16 OCT 90 12 10111/16 OCT 95 75/8 10111/16 Puts OCT 85 1/8 10111/16 OCT 90 3/8 10111/16 OCT 95 13/16 10111/16 -Refer to Exhibit 22.2.If XYZ were trading at $90/share and you formed a bull money spread,what is your profit if XYZ is trading at $110 at expiration?