You are holding call options on a stock. The stock's beta is 0.76, and you are concerned that the stock market is about to fall. The stock is currently selling for $16 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.80. How much of the market-index portfolio must you buy or sell to hedge your market exposure? Note: Enter your answer in dollar not in millions. Market index portfolio to buy sell
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- You are holding call options on a stock. The stock’s beta is 0.65, and you are concerned that the stock market is about to fall. The stock is currently selling for $10 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.70. How much of the market-index portfolio must you buy or sell to hedge your market exposure? Note: Enter your answer in dollar not in millions.You are holding call options on a stock. The stock's beta is 0.55, and you are concerned that the stock market is about to fall. The stock is currently selling for $4 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.60. How much of the market-index portfolio must you buy or sell to hedge your market exposure? (Enter your answer in dollar not in millions.) Market index portfolio toYou are holding call options on a stock. The stock’s beta is .75, and you are concerned that the stock market is about to fall. The stock is currently selling for $5 and you hold 1 million options on the stock (i.e., you hold 10,000 contracts for 100 shares each). The option delta is .8. How much of the market-index portfolio must you buy or sell to hedge your market exposure?
- You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock = $86 price Exercise price = $85 Risk-free rate = Option maturity = 4 months Standard deviation of 5% per year, compounded continuously annual stock returns = 62% per yearYou are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock = $74 price Exercise price = $70 Risk-free rate = Option maturity = 4 months Standard deviation of annual stock returns 4.4% per year, compounded continuously Call price Put price = 62% per yearYou are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock $72 price Exercise price = $70 Risk-free rate = deviation of Option maturity = 4 months Standard annual stock returns = Call price Put price 4.3% per year, compounded continuously = 61% per year
- Stock XYZ is currently trading at $75, and you are very bearish about the stock (you believe that the stock price is going to drop within the next two months). What action should you take, as a speculator, to gain from your expectation: short a call or put option and why?Refer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140. Required: a-1. If the stock price at option expiration is $144, will you exercise your call?a-2. What is the net profit/loss on your position? (Input the amount as a positive value.)a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $135?b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?c-2. What is the rate of return on your position? (Negative…Question: You are an investment advisor. You currently own two stocks, A and B, with the following characteristics: Expected Return Beta X 10% 0.8 Y 16% 1.5 The current risk-free rate is 2 percent, and the expected return on the market is 12 percent. How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)? Show your calculations (and explain). Stock A: Stock B:
- You use the Black-Scholes-Merton model for a put option on a stock. You calculate N(d1) = 0.60 and N(d2) = 0.56. a) What is the delta of the put option? b) You short 100 put options. How would you hedge your delta exposure using the underlying stock? How many shares would you need to buy or sell?Suppose that JPMorgan Chase sells call options on $1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio.a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position?b. Now it decides to use market index puts to hedge its exposure. Should it buy or sell puts? How many? The index at current prices represents $1,000 worth of stock.You use the Black-Scholes-Merton model for a put option on a stock. You calculate N(d1) = 0.60 and N(d2) = 0.56. a) What is the delta of the put option? Solution for A = -0.40 b) You short 100 put options. How would you hedge your delta exposure using the underlying stock? How many shares would you need to buy or sell?