Reference no: EM133070470

For the next few questions, use the following information:

For the following problems assume the effective 6-month interest rate is 2%, the S&R 6-month forward price is $1020, and use these premiums for S&R options with 6 months to expiration:

Strike	Call	Put
950	120.405	51.777
1000	93.809	74.201
1020	84.47	84.47
1050	71.802	101.214
1107	51.873	137.167

1. How would you create a box spread with a certain payoff of $50?

Group of answer choices

A. Buy a call and sell a put both with a strike price of $1000 while simultaneously buying a put and selling a call with a strike price of $1050?

B. Buy a call and sell a put both with a strike price of $950 while simultaneously buying a put and selling a call with a strike price of $1050

C. Buy a call and sell a put both with a strike price of $1000 while simultaneously buying a put and selling a call with a strike price of $1020

D. Buy a put and sell a call both with a strike price of $1000 while simultaneously buying a call and selling a put with a strike price of $1050

2. What should it cost to implement the strategy from the previous question?

3. What is the implied effective 6-month interest rate from the box spread? (decimal form)

4. Say you wanted to borrow $68.63 money risk-free by trading in the options above. What strategy would allow you to do this?

Group of answer choices

A. Buy a put and sell a call both with a strike price of $950 while simultaneously buying a call and selling a put with a strike price of $1020

B. Selling call options at strike prices of $950 and $1000, while buying a put option with a strike price of $1020

C. Buy a put and sell a call both with a strike price of $1000 while simultaneously buying a call and selling a put with a strike price of $1050

D. Buy a call and sell a put both with a strike price of $1000 while simultaneously buying a put and selling a call with a strike price of $1050

5. According to put-call parity, what is the implied price of one share of S&R?

For the next 3 questions, use the following information:

At-the-money European 5 month maturity call options on Tesla stock trade for $44.75. The current stock price is $295 and the continuous annual risk-free interest rate is 3.5%...

6. What must be the price of an at-the-money 5 month maturity European put option on Tesla stock

7. What trades could you make if you felt Tesla stock will either increase or decrease in the next 5 months?

Group of answer choices

A. Buy both an at-the-money call option and an at-the-money put option

B. Sell both an at-the-money call option and an at-the-money put option

C. Buy an at-the-money call option and sell an at-the-money put option

D. Sell an at-the-money call option and buy an at-the-money put option

8. You consider the strategy from the previous question to be too expensive. Consider how you could make the same bet on volatility over the next 5 months at a lower cost, but with a strategy that would require the underlying to have a larger move in price for the option strategy to payoff. What is the option premium you would pay for this lower cost (but lower payoff) strategy given the following prices:

Strike	Call	Put
280	53.45	40.48
295	44.75	43.26
310	37.88	50.45