After 20 trading days of dynamically delta-hedging, you have the following positions on the option expiration day: 

You short 200 call option contracts. Each contract is on 100 shares of the underlying stock. Strike price is $50.

You hold 19,981 shares of the underlying stock. Stock price is $52.11

You have accumulated $1,015,313 worth of debt as of the previous trading day. Interest rate is 0.015 per year (there are 252 trading days in a year).

You have $17,469 in your cash account (that's the premium you received from writing the calls originally)

 

1) Given that this is the expiration day, you are liquidating all your positions. Calculate the value of your gain/loss just on the option contracts, given the options are expiring in the money today. This would be your gain/loss if you didn't hedge. 

 

 2) Given that this is the expiration day, you are liquidating all your positions. Calculate the amount of debt you will be repaying in full today.

 3) Given that this is the expiration day, you are liquidating all your positions. Calculate the amount you are going to receive just from selling all the shares in your account today.

 4) Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year. 

Find the value of the call option next year if the stock price goes up.

 

Answer rating: 100% (QA)

1 Calculate the value of your gainloss just on the option contracts given the options are expiring in the money today This would be your gainloss if y... View the full answer