Financial Derivatives (N1559) – Spring 2024 Seminar Questions Week 3
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Financial Derivatives (N1559) – Spring 2024
Seminar Questions Week 3
Please work through the seminar questions BEFORE attending the seminar. Solutions to the questions will be provided on Canvas. If you would like to discuss any of the Quiz questions in the seminar, please email your tutor which details of which questions you would like to be covered.
1. (JC 5.12) "Because a call is the right to buy and a put is the right to sell, a long call position will be canceled out by a long put position." Do you agree with this statement? Explain your answer.
2. (JC 5.14) The following option prices are given for Sunstar Inc., whose stock price equals $50.00:
|
Strike Price |
Call Price |
Put Price |
|
45 |
5.50 |
1.00 |
|
50 |
1.50 |
1.50 |
|
55 |
1.00 |
5.55 |
Compute the intrinsic value of each of these options and identify whether they are in-the- money, at-the-money, or out-of-the-money.
3. (JC 15.6) The price of a put option with strike K2 = 20 is $0.75 and the price of a put option with strike K4 = 25 is $3.50.
(a) What is a bullish vertical spread (bull spread)?
(b) Draw a bullish vertical spread by trading put options with strike prices K2 = 20 and K4 = 25.
4. (JC 15.18)
(a) What is a collar in the options market?
(b) How would you create a zero-cost collar?
(c) Why might a copper manufacturer find it useful to employ this strategy?
5. (Data question) Download option data from barchart.com for an underlying of your choice (go to barchart.com and search for the symbol; on the left, you can then find Options → Options
Prices). Use the data to construct the bid/ask prices for the following option strategies on the Apple Computer (AAPL) (use a maturity closest to 30 days):
(a) An at-the money straddle
(b) A protective put
(c) Bull spread with strikes at around 90% and 110% moneyness
(d) Strangle with strikes at around 95% and 105% moneyness
2024-04-02