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What are the break-even prices

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Reference no: EM13872226

From Yahoo.com, obtain GOOG's call and option price for the second-month expiry contracts as of the close of the 8th week of class. That is, if we are in November, then choose the January-expiry contract.

[In Yahoo - Finance, type in GOOG, you will see data on GOOG. On the left of the screen, you will see a link for options and you can see the entire list of options. Please note that if you don't download the prices by the next day, you will not be able to get the prices from Yahoo.com.]

Then, do the following.

a)  Assume you already own the stock. You decide to buy a protective put. Write the profits (or value) using notations used in class (X, ST, PP, PC) under appropriate stock price regimes. An example is given below.

 

Stock

Buy Put @ 430

Value

ST ≤ 430

ST

430 - ST-8

422

ST>430

ST

0 -8

 ST - 8

Choose the option whose exercise price is just below5% offthe current price. Graph your portfolio value as a function of ST.What is the lowest value your portfoliocould fall to?What is the maximum and minimum portfolio value that your portfolio could reach?

b) Assume you already own the stock. You decide to write a covered call. Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes.Choose the option whose exercise price is just above5% off the current price. Graph yourportfolio value as a function of ST.What is the maximum and minimum portfolio valuethat your portfolio could reach?

c) Assume you already own the stock. You choose to write a collar. Write the profits (or value)using notations used in class (X, ST, PP, PC) under appropriate stock price regimes. Choose the out-of-the-money put option whose exercise price is just below 5% off the current price. Choose the out-of-the-money call option whose exercise price is just above5% of the current price. Graph your portfolio value as a function of ST. What is the maximum and minimum portfolio valuethat your portfolio could reach?

d) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a bull spread created usingcalls. Choose the long exercise price such that that is just above the current price. Choose the short call exercise price to be $20 above the long call exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of ST. What is the break-even price and under what price range do you make profits?What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

e) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a bear spread created using calls. Choose the short call exercise price that is just abovethe current price and choose the long call exercise that is $20 above the short call exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of ST. What is the break-even price and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

f) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a short strangle. Choose the option whose exercise price is just below 5% off the current stock price and just above 5% off the current price. Graph the profit profile as a function of ST. What are the break-even prices and under what price range do you make profits?What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

g) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a short iron butterfly. Choose the option whose exercise price is just below the current stock price for the ATM call and put options. Choose the option whose exercise price is just below 5% off the current stock price for the OTM put option. Let's say the exercise price of this OTM option is $20 from the exercise price of the ATM option. Then chose the exercise price of the OTM call option to be $20 above the exercise price of the ATM option. Graph the profit profile as a function of ST. What are the break-even prices and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

h) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a bull spread created using puts. Choose the short put exercise price such that that is just above the current price. Choose the long put exercise price to be $20 below the short put exercise price. State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of ST. What is the break-even price and under what price range do you make profits?What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

i) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a bear spread created using puts. Choose the long put exercise price that is just below the current price and choose the short put exercise that is $20 below the long put exercise price.State clearly the exercise price of the options that are bought and sold. Graph the profit profile as a function of ST. What is the break-even price and under what price range do you make profits?What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

j) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a short straddle. Choose the option whose exercise price is just below the current stock price. Graph the profit profile as a function of ST. What are the break-even prices and under what price range do you make profits?What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

k) Write the profitsusing notations used in class (X, ST, PP, PC) under appropriate stock price regimes for a short condor. Choose the option whose exercise price is just below 5% off the current stock price for the short OTM put options. Choose the option whose exercise price is just above 5% off the current stock price for the short OTM call options. For the long put option, choose exercise price that is $20 less than the exercise price of the short put option. For the long call option, choose exercise price that is $20 more than the exercise price of the short call option. Graph the profit profile as a function of ST. What are the break-even prices and under what price range do you make profits? What is the maximum profit and under what price range does this happen? What is the maximum loss and under price range does this happen?

Reference no: EM13872226

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