Explain each of the following concepts as they relate to call options.

Finance by Geoffrey

Marks: 10 Marks

Assignment Question(s):      (Marks 10)

Q1.Explain each of the following concepts as they relate to call options.

  1. Rho ( 1 Mark)
  2. Theta ( 1 Mark)
  3. Vega ( 1 Mark)

 

Q2.Discuss the covered Call strategy and protective Put strategy? And describe their advantages and disadvantages?                                                               (3 Marks)

 

Q3. Consider a stock worth $35 that can go up or down by 15 percent per period. The risk-free rate is 10 percent. The exercise price of European call option is $35.  Use one binomial period.

  1. Determine the two possible stock prices for the next period. (1 Mark)
  2. Determine the intrinsic values/values at expiration of a European call option. (1Mark)
  3. Find the theoretical value/Price of the option today. (2 Mark)