YOU MUST USE THIS AS A TEMPLATE – (you certainly don’t need to type this assignment)– LEAVE THE QUESTIONS AS THEY ARE – AND PLEASE STAPLE ! NOTEBOOK PAPER (OR ANY PAPER ) STAPLED TO THE BACK IS NOT...

Exam #1
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1) (65 points total) Use the three tables below to answer the following questions
Table 1


Table 2


Table 3


For all option questions, use the 'Last' column for the premium of the option(s)... as we did/do in class.
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a) (5 points) Why is the 160 call cheaper in Table #2 than it is in Table #1?
Option priceis in Table 2 are as of August 29 and that in Table 1 is of August 22. Though the price of the stock has increased but the
time to expiry has reduced. So, the call of 160 is cheaper in table 2 than in Table 1.

) (5 points) Suppose we play a long straddle by purchasing one 160 call and one 160 put at Table 1 and close both positions at Table
2. Calculate the profit/loss and rate of return.
Open at Table 1: 204 +230 = 434
Close at Table 2: 170 + 95 = 265
So, Loss = 265 – 434 = - 169
Rate of return = -169/434 = - 38.94%

c) (5 points) Suppose instead that we waited and closed at Table 3, calculate the profit/loss and rate of return.
Open at Table 1: 204 +230 = 434
Close at Table 3: 405 +0 = 405
So, Loss = 405 – 434 = - 29
Rate of return = -29/434 = - 6.68%
d)(10 points) Assuming the spot price of AAPL is frozen at its value on Table 2 until expiration, plot the evolution of the premium on
the 160 call and the 160 put (use Table 2 for all information). Be sure to label cal and put
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e) (5 points) Suppose your friend plays a short straddle by writing (selling) one 160 call and one 160 put at Table 1 and closes both
positions on Table 2. Calculate the profit/loss of doing so. Does your answer relate to any of your answers above? What is this
principle refe
ed to as? Explain and show work.
Open at Table 1: (204 +230) = 434

Close at Table 2: -(170 + 95) = -265
So, Profit = -265 + 434 = 169
Yes this answer relate to part (b). This is refe
ed to as zero sum game.
f) (25 points for a co
ect and completely labeled graph) We are now going to graph the profit functions for the long and short straddle
as above where we opened up the positions at Table 1. Identify the profit / loss for both players for two points: point A is one point,
with the spot at expiration as it is in Table 2: spot = $160.73 (there are two points A's, one for the player of long straddle and one for
the player of short straddle). Point B is the other point, with the spot at expiration as it is in Table 3: spot = $164.05 (there are two
points B's, one for the player of long straddle and one for the player of short straddle).

Also make sure you label both
eakeven (BE) points.


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g) (10 points) Go through the math assuming that the player of the long straddle exercises the options under the conditions associated
with point B where the spot @ expiration is $164.05. Be sure to clearly indicate what the player of the...