Which of the following positions best describes what you should do to accomplish your objective?

buy the July 130 call and sell the July 130 put

sell the July 130 call and sell the July 130 put

buy the July 120 call and buy the June 120 put

buy the July 125 call and buy the July 125 put

sell the July 125 call and sell the July 125 put

You are a corporate Treasurer in charge of managing the cash position of your firm. You have excess cash that you will not need until June 20th (after June expiration) and want to use an options strategy that operates similarly to a bond to get a return on your money in a risk-free way.

(1) Which strategy below best accomplishes your objective?

a straddle

a box

a bear call spread

a butterfly

a calendar spread

(2) Assume you enter into the position you chose from above, and there was a net cost to the spread (for example, using the prices from the table above, you bought the June 120 calls for $15.40, sold the June 120 puts for $9.25, sold the June 120 puts for $11.35 and bought the June 130 puts for $14.25 - all for a net cost (debit) of $9.05). You expect the position price to be $10 at the June expiration.

Since the strategy costs you $9.05 and you expect to get back $10 at expiration, are you synthetically lending or borrowing money by trading the spread? (hint: follow the money going in and out of your account and relate it to buying or selling a bond)

lending

borrowing

You are long the June 120 call from the table above, which has 51 days to expire. The underlying stock price is 125.94, and the current delta is .71. With all other variables being equal, if 30 days pass and the stock is still 125.94, the following statements about the new delta are most correct. (hint: think of the probability of the June 120 calls now finishing in the money after time has passed)

the delta will be closer to zero since the June 120 call is out-of-the-money

the delta will be closer to 100 than zero

the delta will be closer to 50

the delta will still be .71

You are long the June 130 call from the table above, which has 51 days to expire. The underlying stock price is 125.94, and the current delta is .32. With all other variables being equal, if 30 days pass and the stock is still 125.94, the following statements about the new delta are most correct. (hint: think of the probability of the June 130 calls now finishing in the money after time has passed)

the delta will be closer to zero

the delta will be closer to 100 than zero

the delta will be closer to 50

the delta will still be .32

You are a trader at an options desk for an investment bank. The underlying stock of the options you trade is priced at $125.94. You buy 50 June 125 calls (delta =.64) for $13.50 (which is .50 under your Black-Scholes-Merton value) and are immediately able to sell 50 June 125 puts (delta = -.36) for your value (so you have an edge in the net position).

(1) If all you have in your position now is +50 June 125 calls and -50 June 125 puts which strategy best describes your inventory?

long a bull call spread

long a June 125 collar

long a June box

long a June 125 straddle

long a June 125 combo

What is the delta of the position (use $100 for the price multiplier)? (show your work)

_____________

If you hedged the delta from part (2), what strategy best describes the net position now (i.e.

The options and the stock position)?

a conversion

a reverse conversion

a straddle

a box

a collar

none of the above

(2) Which of the following positions best describes what you should do to accomplish your objective?

buy the July 130 call and sell the July 130 put

sell the July 130 call and sell the July 130 put

buy the July 120 call and buy the June 120 put

buy the July 125 call and buy the July 125 put

sell the July 125 call and sell the July 125 put

You are a corporate Treasurer in charge of managing the cash position of your firm. You have excess cash that you will not need until June 20th (after June expiration) and want to use an options strategy that operates similarly to a bond to get a return on your money in a risk-free way.

(1) Which strategy below best accomplishes your objective?

a straddle

a box

a bear call spread

a butterfly

a calendar spread

(2) Assume you enter into the position you chose from above, and there was a net cost to the spread (for example, using the prices from the table above, you bought the June 120 calls for $15.40, sold the June 120 puts for $9.25, sold the June 120 puts for $11.35 and bought the June 130 puts for $14.25 - all for a net cost (debit) of $9.05). You expect the position price to be $10 at the June expiration.

Since the strategy costs you $9.05 and you expect to get back $10 at expiration, are you synthetically lending or borrowing money by trading the spread? (hint: follow the money going in and out of your account and relate it to buying or selling a bond)

lending

borrowing

You are long the June 120 call from the table above, which has 51 days to expire. The underlying stock price is 125.94, and the current delta is .71. With all other variables being equal, if 30 days pass and the stock is still 125.94, the following statements about the new delta are most correct. (hint: think of the probability of the June 120 calls now finishing in the money after time has passed)

the delta will be closer to zero since the June 120 call is out-of-the-money

the delta will be closer to 100 than zero

the delta will be closer to 50

the delta will still be .71

You are long the June 130 call from the table above, which has 51 days to expire. The underlying stock price is 125.94, and the current delta is .32. With all other variables being equal, if 30 days pass and the stock is still 125.94, the following statements about the new delta are most correct. (hint: think of the probability of the June 130 calls now finishing in the money after time has passed)

the delta will be closer to zero

the delta will be closer to 100 than zero

the delta will be closer to 50

the delta will still be .32

You are a trader at an options desk for an investment bank. The underlying stock of the options you trade is priced at $125.94. You buy 50 June 125 calls (delta =.64) for $13.50 (which is .50 under your Black-Scholes-Merton value) and are immediately able to sell 50 June 125 puts (delta = -.36) for your value (so you have an edge in the net position).

(1) If all you have in your position now is +50 June 125 calls and -50 June 125 puts which strategy best describes your inventory?

long a bull call spread

long a June 125 collar

long a June box

long a June 125 straddle

long a June 125 combo

What is the delta of the position (use $100 for the price multiplier)? (show your work)

_____________

If you hedged the delta from part (2), what strategy best describes the net position now (i.e.

The options and the stock position)?

a conversion

a reverse conversion

a straddle

a box

a collar

none of the above

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 1 The best position to accomplish your objective is to buy the July 125 call and buy the July 125 put This is a strategy known as a straddl... View the full answer