Exchange. Today = T Current Stock price on T ($): Day Count Convention: Act/360 Stock Option...

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Exchange. Today = T Current Stock price on T ($): Day Count Convention: Act/360 Stock Option Style =American Stock option conversion ratio: 1 option=1 share Below are the current market data for stock option of Company ABC in Stock 1 2 3 4 5 6 Call/Put Call Put a) [8 points] Please (i) indicate the moneyness and (ii) compute the time value of above 2 options? Show all your calculation clearly. Week Stock Price (S) Today 21.35 7 b) [3 points] Based on the given market data, investor would like to execute 1 unit of long Strangle strategy on T, please (1) list out the buy/sell of respective option(s) in the market to construct this strategy, (ii) the cost of constructing this strategy and (iii) explain the expectation of this strategy deployment. 8 Time to Expiry 90 days 90 days c) [9 points] After investor had constructed the 1 unit long Strangle strategy on T, the observed stock price outcomes at 4PM of last working day of each week before option expiry shown in below. 9 10 11 12 21.35 21.00 19.00 17.00 Stock Stock Price Outcomes at 4PM of last working day of each Price week before option expiry ($) 25.00 30.00 31.00 26.50 30.00 29.00 25.01 27.00 25.01 25.00 20.00 23.0021.35 19.20 18.93 17.00 16.00 19.00 15.00 21.35 25.00 Today 1 Strike Price ($) 23.00 21.00 26.50 2 0.80 1.25 3 25.01 25.01 4 20.00 19.20 18.93 5 -e-Stock Price (5) 6 7 8 17.00 9 16.00 19.00 21.35 10 11 12 Time (in Week) Based on the above observed stock price outcomes of each week, please indicate which week(s) the investor could close out his long Strangle position with profit via option exercising at 4PM? Please show your calculation clearly to justify your choice(s). (Assumption: The Stock Exchange rule is that American stock option can be exercised at any time before option market closing 5PM daily. Ignore the transaction cost.) Exchange. Today = T Current Stock price on T ($): Day Count Convention: Act/360 Stock Option Style =American Stock option conversion ratio: 1 option=1 share Below are the current market data for stock option of Company ABC in Stock 1 2 3 4 5 6 Call/Put Call Put a) [8 points] Please (i) indicate the moneyness and (ii) compute the time value of above 2 options? Show all your calculation clearly. Week Stock Price (S) Today 21.35 7 b) [3 points] Based on the given market data, investor would like to execute 1 unit of long Strangle strategy on T, please (1) list out the buy/sell of respective option(s) in the market to construct this strategy, (ii) the cost of constructing this strategy and (iii) explain the expectation of this strategy deployment. 8 Time to Expiry 90 days 90 days c) [9 points] After investor had constructed the 1 unit long Strangle strategy on T, the observed stock price outcomes at 4PM of last working day of each week before option expiry shown in below. 9 10 11 12 21.35 21.00 19.00 17.00 Stock Stock Price Outcomes at 4PM of last working day of each Price week before option expiry ($) 25.00 30.00 31.00 26.50 30.00 29.00 25.01 27.00 25.01 25.00 20.00 23.0021.35 19.20 18.93 17.00 16.00 19.00 15.00 21.35 25.00 Today 1 Strike Price ($) 23.00 21.00 26.50 2 0.80 1.25 3 25.01 25.01 4 20.00 19.20 18.93 5 -e-Stock Price (5) 6 7 8 17.00 9 16.00 19.00 21.35 10 11 12 Time (in Week) Based on the above observed stock price outcomes of each week, please indicate which week(s) the investor could close out his long Strangle position with profit via option exercising at 4PM? Please show your calculation clearly to justify your choice(s). (Assumption: The Stock Exchange rule is that American stock option can be exercised at any time before option market closing 5PM daily. Ignore the transaction cost.)

Answer rating: 100% (QA)

a i Moneyness Call Option The strike price of the call option is 2300 and the current stock price is 2135 Since the strike price is higher than the cu... View the full answer