Basic Options Concepts – Questions
The following options quotations were downloaded from:
https://www.asx.com.au/asx/markets/optionPrices.do?by=underlyingCode&underlyingCode=ANZ&expiryDate=&optionType=B
on 19/11/2019. Use labelled diagrams to show that they conform to theory in questions 2 and 3.
HO5-2. Explain the differing offer prices of ANZ put options with exercise prices of $25.50 and different expiry dates.
HO5-3. Explain why the offer prices of ANZ call options with exercise prices of $18.01, 25.50 and 28.00 are successively lower.
Option Hedging Strategies – Questions
1. Harold buys 1,000 ANZ shares at a price of $8.47 and decides to construct a hedge using an equal number of put options, with an exercise price of $8.75 and a cost of 40c per option. Ignoring the time difference between the purchase or sale of the option and its expiry:
i) construct a clearly labelled diagram showing the expiry profit as a function of share-price, from the hedged position.
ii) calculate the profit for the expiry share-prices of $8.25 and $9.00.
2. Shirley buys 1,000 ANZ shares at a price of $8.47 and decides to construct a hedge using an equal number of call options with an exercise price of $7.50, and a cost of $1.00 per option. Ignoring the time difference between the purchase or sale of the option and its expiry:
.i) construct a clearly labelled diagram showing the expiry profit as a function of share-price, from the hedged position.
ii) calculate the profit for the expiry share-prices of $8.00 and $8.75
