Options Pt 3

Question 1

Put call parity

Answer 1

relationship between call and put on the same underlying stock with the same E and TTE

If CFs for portfolios are the same regardless of stock price, then in an efficient market they should have the same cost at time 0

Question 2

Long call (mag)

Answer 2

Long call is like borrowing on margin and has a magnified return relative to just buying stock

Question 3

put-insurance

Answer 3

put provides insurance because if a stock price decreased the value of the put increases and offsets loss

Question 4

put-protection

Answer 4

combine long stock with long put position, put protects the stock like blackjack insurance

Question 5

most risky

Answer 5

buying stock alone is the most risky

Question 6

options and risk

Answer 6

options can enhance risk / decrease risk depending on what they are used in conjuction w

Question 7

naked option

Answer 7

you buy only an option, very risky

Question 8

Black-Sholes Option Pricing Model

Answer 8

value of non-dividend paying European stock, can also be true for American if it does pay dividends

Question 9

Black Sholes Call and Put Value

Answer 9

Call becomes more valuable with increased TTM

Put becomes less valuable with increased TTM as BS takes the present value of the put