e LDv ou Solve usi 11.) Black scholes demonstrates that the value of a put optio
ID: 2618332 • Letter: E
Question
e LDv ou Solve usi 11.) Black scholes demonstrates that the value of a put option increases the longer the time to expiration. Currently the price of a stock is $100 and there are two put options to sell the stock at $100. The three month option sells for 700 and the six month option sells for 4.50 a. what would you do and why? b. how much do you earn or lose after the first three months at the following prices of the underlying stock ($85, $90, $95, $100, $105, and $110) Assume the worse case scenariO. c. is there any reason to anticipate earning a higher return than your answers in (b)? (this answer may use straddle)Explanation / Answer
Answer 1. Here If i am in that place I can take a option plan of 6 months of Sells at put option
Because The black sholes model demonstrates that the value of put option gets increased as the longer the time to expiration But here it is clearly given that the put option plan the option value is less in 6 months as compared to 3 months so as per Black scholes model we have benefit in of 6 months option as compared to other
Answer 2
Answer 3
Yes the answer is to take or appoint straddle strategy in which we can do both the option of one of call and one of put but it is beneficial only in case of heavy fluctuation when the diffrence of EP and future spot price is greater than the sum of both option premium of call and put option
share price after 3 months Put OP EP Position Gross Profit or loss Net profit or loss 85 7 100 exercise 15 8 90 7 100 exercise 10 3 95 7 100 exercise 5 -2 100 7 100 exercise 0 -7 105 7 100 not exercise 0 -7 110 7 100 not exercise 0 -7Related Questions
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