WK5

Please answer the following questions in detail, provide examples whenever applicable, provide in-text citations.

Discuss the risks and payoffs of the following positions, accompanied by payoff graphs.

stock and a put option on the stock.
a stock.
a call.
stock and sell a call option on the stock (covered call).
a bond.
stock, a put, and sell a call.
Sell a put (naked put).

What is put–call parity and why does it hold? Could you apply the parity formula to a call and put options with different exercise prices? 
Over the coming year, Ragwort’s stock price might drop from $100 to $50 or it might rise to $200. The one-year interest rate is 10%. 
What is the delta of a one-year call option on Ragwort stock with an exercise price of $100?
Use the replicating-portfolio method to value this call. 
In a risk-neutral world, what is the probability that Ragwort stock will rise in price? 
Use the risk-neutral method to check your valuation of the Ragwort option. 
If someone told you that in reality there is a 60% chance that Ragwort’s stock price will rise to $200, would you change your view about the value of the option? Explain.

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2 pages APA 7th format, make sure the similarity is blow 20%