Suppose you buy 30 April 100 put option contracts. What is your maximum gain? On the expiration
Question:
Step by Step Answer:
Initial cost 30100660 1980...View the full answer
Fundamentals of Investments Valuation and Management
ISBN: 978-0077283292
5th edition
Authors: Bradford D. Jordan, Thomas W. Miller
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Corporate Finance questions
-
Suppose you buy 30 March 100 put option contracts. What is your maximum gain? On the expiration date, Hendreeks is selling for $84.60 per share. How much is your options investment worth? What is...
-
Suppose you buy 50 April 100 call option contracts. How much will you pay, ignoring commissions? Calls Puts Strike Last Close Price Expiration Vol. Last Vol. Hendreeks 103 Feb 100 72 5.20 50 2.40 Mar...
-
Suppose you write 15 put option contracts with a $45 strike. The premium is $3.80. Evaluate your potential gains and losses at option expiration for stock prices of $35, $45, and $55.
-
It is clear that Jaguar practices responsibility toward the environment. Using your knowledge gained from this Jaguar case study and further research, provide five (5) examples of how Jaguar is...
-
Show that the triangle ABC is a right triangle if the vertices are A(6, 3,3), B(3, 1, -1), and C(-1, 10, -2.5).
-
Some business owners incorporate to give their start-up business an air of legitimacy. a) True b) False
-
Derive the differential equation and the boundary conditions governing the buckling of a simply supported, rectangular, symmetric angle-ply laminate that is subjected to a uniaxial in-plane load,...
-
Zimmerman Clothiers manufactures womens business suits. The company uses a standard cost accounting system. In March 2014, 15,700 suits were made. The following standard and actual cost data applied...
-
Smart Technology Company had the following information during the previous year for one of its product lines: Sales Price per Unit $6000 Units in Beginning Inventory 0 Units Started During the Year...
-
The NOI for a small income property is expected to be $150,000 for the first year. Financing will be based on a 1.2 DCR applied to the first year NOI, will have a 10 percent interest rate, and will...
-
In Problem 4, suppose that Hendreeks stock is selling for $107.50 per share on the expiration date. How much is your options investment worth? What if the stock price is $102.40 on the expiration...
-
Suppose you write 30 of the February 100 put contracts. What is your net gain or loss if Hendreeks is selling for $90 at expiration? For $110? What is the break-even price, that is, the terminal...
-
Air flows through a Venturi meter as shown in the accompanying figure. Determine the difference in pressure between point A and B if the height difference of the water columns is 3 cm. Assume air =...
-
Why did the sterling-based gold standard originally unravel?
-
Do you think the potential sale of the Stock business in the US will be enough to relieve the current pressure on Wolco's balance sheet? What value would potentially need to be achieved to provide a...
-
Green LTD has a Note Receivable of $5,000. The note will be collected in installments. $1,000 is due one years and the remainder is due after a year. What is the classification of the note on the...
-
Summarize The Tax Cuts and Jobs Act (TCJA) significantly increased the standard deduction for all taxpayers. Single filers increased from $6,350 to $12,000, heads of households filed from $9,350 to...
-
What is a way that compensation professionals can help leverage the value of human capital?
-
Decide whether something is wrong with each of the graphs shown in Problems 13-17. Explain your reasoning. Consider the graph shown in Figure 14.21. The potential commercial forest growth, as...
-
Assessing simultaneous changes in CVP relationships Braun Corporation sells hammocks; variable costs are $75 each, and the hammocks are sold for $125 each. Braun incurs $240,000 of fixed operating...
-
Solve Exercise E7, when the production total cost function has a form: Exercise E7 There are given: or equivalently: clot (x1, x2) = a(f(x, x)) + (x, x) + Y, tot (y) =ay +By+y, where y=f(x1, x2) is...
-
If a stock is selling for $25, the exercise price of a put option on that stock is $20, and the time to expiration of the option is 90 days, what are the minimum and maximum prices for the put today?...
-
Miss Molly, your eccentric (and very wealthy) aunt, wants you to explain something to her. Recently, at the Stable Club, she heard something fantastic. Her friend Rita said that there is a very...
-
You own a share of stock worth $80. Suppose you sell a call option with a strike price of $80 and also buy a put with a strike price of $80. What is the net effect of these transactions on the risk...
-
What strategies might you use to implement the personal change needed to support organizational change? What is the relevance of unity consciousness in organizational leadership, communications, and...
-
Recognizing the literature (and its limitations) for conveying policing organization, management, and change - what management/organizational changes are needed in policing today? Why? How do we set...
-
How do organizations effectively navigate the complexities of organizational change, integrating advanced change management methodologies to mitigate resistance and foster sustainable transformation?
Study smarter with the SolutionInn App