Question
A) Six-month call options with strike prices of $45 and $50 cost $7 and $4, in that order
1) Describe the maximum gain when a bull spread is created from the calls?
2) Describe the maximum loss when a bull spread is created from the calls?
3) Describe the maximum gain when a bear spread is created from the calls?
4) Describe the maximum loss when a bear spread is created from the calls?
B) Estimate the price of a 3 months European put option on a stock with a strike price of $60 when the current stock price is $60, a extra of $1.50 is accepted in 2months, the risk-free interest rate is 10 Percent per annum, and the volatility is 30 Percent per annum. Show Present Value of extra and intended values of d1 and d2
1) Compute PV of dividend
2) Show value of d1
3) Show value of d2
4) Estimate the price of the put option
C) A portfolio manager in charge of a portfolio worth $8 million is concerned that the market might refuse quickly during the next 6 months and would like to use option on the S&P 100 to provide defence against the portfolio falling below $7 million. The S&P 100 index is currently valued at 400 and each contract is on 100 times the directory
1) If the portfolio has a beta of 1, how many put option contract should be purchased?
2) If the portfolio has a beta of 1, what should the strike price of the put option be?
3) If the portfolio has a beta of 0.5, how many put options should be purchased?
D) A call option on an asset has a delta of 0.3. A trader has sold 3,000 options and wants to produce a delta-impartial place.
1) Should the trader take a long or short spot in the advantage?
2) How many units of the asset should be buy or sold?
E) Some investor standard the weaknesses inherent in the usage of CDOs during the time of the Crisis and made profits on the order of tens or hundreds of millions of dollars by betting against the markets. Briefly explain how they did this. What was the eventual source of their proceeds? Should the U.S. government have instituted a "Windfall Profits Tax" on these individuals and used the money to fix the financial damage caused during the crisis?