1. A put option on Snapple Beverage has an exercise price of $30. The current stock price of Snapple Beverage is $24.25. The put option price is $7.75
a. Is this option an at-the-money option, out-of-the-money option, or in-the-money option?
b. Compute the intrinsic value and the time value of this option.
2. You write a put option with X = $50 and buy a put with X = $60. One is selling for $3 and another is selling for $8. The options are on the same stock and have the same maturity date.
a. What is the break-even point for this strategy?
b. How much is profit/loss when stock price is $55?
3. George Evans is currently bullish on the common stock of the Franklin Corporation. Franklinâs current price is $75 and a 3-month call with an exercise price of $75 is selling for $4. Ignore commissions and taxes. If Evans purchases the call and the price of the stock increases to $81 after 3 months, what kind of rate of return will he make?
4. You write one IBM July 120 call contract for a premium of $4. You hold the option until the expiration date when IBM stock sells for $113 per share. What will be your realized profit/loss on the investment?
1. A put option on Snapple Beverage has an exercise price of $30. The current stock price of Snapple Beverage is $24.25. The put option price is $7.75
a. Is this option an at-the-money option, out-of-the-money option, or in-the-money option?
b. Compute the intrinsic value and the time value of this option.
2. You write a put option with X = $50 and buy a put with X = $60. One is selling for $3 and another is selling for $8. The options are on the same stock and have the same maturity date.
a. What is the break-even point for this strategy?
b. How much is profit/loss when stock price is $55?
3. George Evans is currently bullish on the common stock of the Franklin Corporation. Franklinâs current price is $75 and a 3-month call with an exercise price of $75 is selling for $4. Ignore commissions and taxes. If Evans purchases the call and the price of the stock increases to $81 after 3 months, what kind of rate of return will he make?
4. You write one IBM July 120 call contract for a premium of $4. You hold the option until the expiration date when IBM stock sells for $113 per share. What will be your realized profit/loss on the investment?
Related questions
Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $168, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $163, the price of the put option is $10.85.
Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent.
a. What will be the profit/loss on this position if IBM is selling at $157 on the option expiration date? $
b. What will be the profit/loss on this position if IBM is selling at $172 on the option expiration date? $
c. At what two stock prices will you just break even on your investment (i.e., zero net profit)?
For the put, this requires that: $
For the call this requires that: $
d. What kind of âbetâ is this investor making; that is, what must this investor believe about IBMâs stock price in order to justify the position?
| betting that the IBM stock price will go up. | |
| betting that the IBM stock price will go down. | |
| betting that the IBM stock price will have low volatility. | |
| betting that the IBM stock price will have high volatility. |
