Explain how the terms of the option contract change

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Financial Derivative and Risk Management Assignment - Mechanics of Stock Options

Please answer below each question.

Question 1 - Consider an exchange-traded call option contract to buy 500 shares with a strike price of $40 and maturity in four months. Explain how the terms of the option contract change when there is

(a) A 10% stock dividend

(b) A 10% cash dividend

Question 2 - A trader writes five naked put option contracts, with each contract being on 100 shares.

The option price is $10, the time to maturity is six months, and the strike price is $64.

(a) What is the margin requirement if the stock price is $58?

(d) How would the answer to (a) change if the trader is buying instead of selling the options?

Reference no: EM131941403

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