ABC Corp. is selling on NASDAQ at 25.50. You think that Obama will solve the \"F
ID: 2730459 • Letter: A
Question
ABC Corp. is selling on NASDAQ at 25.50. You think that Obama will solve the "Fiscal cilff" problem and that the price of the stock will go to 40 3/4. If option premiums are 5 1/2% which BASIC option would you y to make money? XYZ corp. is selling at 25.50. You think that obma will solve the "Fisca cliff" problem and that the price of te stock will fall to 12 4/14. If option premium are at 9.655%, which basic option would you buy to make money, assuming your prediction comes true? P_cs = 71 1/7 you predict P_cs will go to 99.99. with option premiums at 8 1/2, Which option will make you the MOST money, assuming you are right? You have absolutely NO CLUE which way the market will turn after the "Fiscal Cliff starts. The price of this stock could fall to57 1/4. Which option would be the most logical to buy to protect yourself whichever way things turn out?(Show calculations!) A stock price is $10.00, and you think it will go up to $13.00. Which option would you buy to make the most money and return? Show calculations if the premium for the option is 12%. A stock price is $10.00, and you think the price will fall to $6.50. Which of the 5 options would you buy to make any money at all? Assume that all options cost the same - -10% premium. SHOW CALCULATIONS!Explanation / Answer
1.
Since the price is going up, Call option shall be bought. Premium amount of 5.5% on 25.5 = 1.40,
Strike price shall be below (40.75 - 1.4) = 39.35 to have profit.
2.
Since the price will go down, Put option shall be bought.
Premium amount = 25.5*9.655% = 2.46
Strike Price shall be above (12.29+2.46) = 14.75 to have profit.
3.
4.
Since price will go up to 13 from 10, Call option will be bought. Premium amount = 10*12%=1.2.
Strike price shall be below (13 - 1.2) = 11.8 to have profit.
5.
Since price price will fall, Put option bill be bought to make money. Premium amount = 10*10% = 1
So Strike price shall be above (6.5+1)=7.5 to have profit