FIN405-Assignment-2.docx

College of Administrative and Financial Sciences

Assignment-2

FIN-405-Financial Derivatives

Due Date: 17/4/2022@ 23:59

For Instructor’s Use only

General Instructions – PLEASE READ THEM CAREFULLY

· The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.

· Assignments submitted through email will not be accepted.

· Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.

· Students must mention question number clearly in their answer.

· Late submission will NOT be accepted.

· Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.

· All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

· Submissions without this cover page will NOT be accepted.

Assignment 2

Submission Date by students: 17/04/2022-11:59 PM

Place of Submission: Students Grade Centre via blackboard.

Marks: 10 Marks

Assignment Purposes/Learning Outcomes:

CLO-2: Describe trading strategy which incorporates the use of call and put options

CLO-4. Calculate option maximum gain, maximum loss, and breakeven on various options positions

Assignment Question(s): (Marks 10)

Q1.Explain each of the following concepts as they relate to call options. (3 Marks)

a. Delta ( 1 Mark)

b. Gamma ( 1 Mark)

c. Rho( 1 Mark)

Q2.What are the differences among scalpers, day traders, and position traders? (3 Marks)

Q3. Assume the possible stock prices of Hull Inc. are $150, $155, $160, $165, $170, $175, and $180. The price(premium) is $5 for October165 put option of Hull Inc.

Suppose you buy one October 165 put option contract(Np=100) of Hull Inc. and hold it until the options expire.

a) Determine the profit and loss at respective stock prices of Hull Inc.(2 Marks)

b) Determine the breakeven stock price at expiration. (1 Mark)

c) What are the maximum possible profit and loss on this transaction.(1 Mark)