Suppose a security has a bid price of $100 and an ask price of $100.12. At what price can the market-maker purchase a security? At what price can a market-maker sell a security? What is the spread in dollar terms when 100 shares are traded?
Answer to relevant QuestionsSuppose you short-sell 300 shares of XYZ stock at $30.19 with a commission charge of 0.5%. Supposing you pay commission charges for purchasing the security to cover the short-sale, how much profit have you made if you close ...For Figure 2.6, verify the following: a. The S&R index price at which the call option diagram intersects the x-axis is $1095.68. b. The S&R index price at which the call option and forward contract have the same profit is ...Using the same information as the previous question, draw payoff and profit diagrams for a short position in the stock. Verify that profit is 0 at a price in 1 year of $55. Suppose that you buy the S&R index for $1000, buy a 1000-strike put, and borrow $980.39. Perform a payoff and profit calculation mimicking Table 3.1. Graph the resulting payoff and profit diagrams for the combined position. Verify that the butterfly spread in Figure 3.14 can be duplicated by the following transactions (use the option prices in Table 3.4): a. Buy 35 call, sell two 40 calls, buy 45 call. b. Buy 35 put, sell two 40 puts, buy 45 ...
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