Question: Suppose you purchased a Texas Instruments August 75 call contract quoted at $8.50 and wrote a Texas Instruments August 80 call contract quoted at $6.

Suppose you purchased a Texas Instruments August 75 call contract quoted at $8.50 and wrote a Texas Instruments August 80 call contract quoted at $6. If the price of a Texas Instruments stock at maturity is $79, your profit will be _________.?

2. ABC Corporation's common stock has been trading in a narrow price range last month and you are confident that it will stay in this range over the next three months. But you don't know if it will go up or down. A three-month call option on ABC stock with a current price of the stock of $100 per share and a strike price of $100 is $10. The quarterly put option on ABC stock with a strike price of $100 is $8.00.

a. What will be the profit/loss if ABC stock drops to $95?

b. What would be the breakeven points of your strategies?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

1 To calculate the profit we need to consider the options contracts and the stock price at maturity ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...

A European call option is a contract with the following conditions: At a prescribed time in the future, known as the expiration date, the holder of the option has the right, but not the obligation to...

The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do...

Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50. If, at expiration, the price of a share of Texas Instruments stock is $79, your profit would be

Question 8 (2 points) Suppose you purchase one Texas Insurance August 75 call contract quoted at $8.50 and write one Texas Insurance August 80 call contract quoted at $6. If, at expiration, the...

Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50. If, at expiration, the price of a share of Texas Instruments stock is $79, your profit would be _________. (Note:...

1. Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50 and write one Texas Instruments August 80 call contract quoted at $6. If, at expiration, the price of a share of...

Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50 and write one Texas Instruments August 80 call contract quoted at $6. What is this strategy called? What is the...

Suppose you write one Texas Instruments August 75 call contract quoted at $8.50 and buy one Texas Instruments August 80 call contract quoted at $6. What is this strategy called? What is the maximum...

42. Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50 and write one Texas Instruments August 80 call stock is $79, your profit would be contract quoted at $6. If, at...

Consider Knight Fashion from S8-5. Assume that the fixed expenses assigned to each department include only direct fixed costs of the department (rather than unavoidable fixed costs as given in S8-5):...

Determine by Rankine's formula the safe load on the column of 5.5 m length, with both ends fixed, can carry with a factor of safety 4. The properties of section are A= 1777mm2. Ixx= 11.6x106 mm4....

Write five other iterated integrals that are equal t o the given iterated integral. 0 8 y 8 0 y f ( x , y , z ) d z d x d y 0 0 0 1 0 1 0 | 0 0 z | 0 | z 0 y y z | f ( x , y , z ) d y d z d x f ( x ,...

Multinational transfer pricing, global tax minimization. Industrial Diamonds, Inc., based in Los Angeles, has two divisions: South African mining division, which mines a rich diamond vein in South...

Reporting a Correct Income Statement with Earnings per Share to Include the Effects of Adjusting Entries and Evaluating the Net Profit Margin as an Auditor Tyson, Inc., a party rental business,...

The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firms management that they must price the new issue to the public at $22...

Job costing, contracting, ethics. Kingston Company manufactures modular homes. The company has two main products that it sells commercially: a 1,000 square foot, one-bedroom model and a 1,500 square...

Allocation and proration of overhead. Tamden, Inc., prints custom marketing materials. The business was started January 1, 2010. The company uses a normal-costing system. It has two direct cost...

Integrate the first-order ordinary differential equation(x +2y) dydx = y.Below, C is an arbitrary constant.A.2 ln |y|5 ln |x| xy1= CB.10 ln |y| ln |x|3xy1= CC.2 ln |y| ln |x| xy2= CD. ln(y2) xy1=...

An employee with 25 years of service at a company is considering retirement at some time in the next 10 years. The employer uses a final pay benefit formula by which the employee receives an annual...

What specific changes occur on the balance sheet at the completion of the securitization process? What adjustments occur to the risk profile of the FI?

Suppose that, instead of funding the $ 200 million investment in 10 percent German loans with U.S. CDs, the FI manager in Problem 10 funds the German loans with $ 200 million equivalent one-year euro...

During the morning hours at a catalogue sales department, phone calls come in at an average rate of 40 per hour. Calls that cannot be answered immediately are put on hold. The system can handle eight...

A priority system is used to process customers, who are assigned one of two classes when they enter the processing centre. The highest-priority class has an average arrival rate of four per hour; the...

Trucks arrive at the loading dock of a wholesale grocer at an average rate of 1.2 per hour in the mornings. A single crew consisting of two workers can load a truck in about 30 minutes. Crew members...