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Assume the current market prices for UUU, WWW, XXX, YYY, and ZZZ are

$27.15, $3.82, $34.32, $29.00, and $80.08 respectively. Determine whether

the following options are in, at, or out of the money. Let 1 be "in",

0 be "at", and -1 be "out".

1. A put option you are holding on UUU stock has a strike price of $27.00.

The put premium on the option was $0.16 per share when you bought it.

2. A call option you are holding on WWW stock has a strike price of $4.00.

The call premium on the option was $0.21 per share when you bought it.

3. A call option you wrote on XXX stock has a strike price of $33.00.

The call premium on the option was $0.20 when you wrote the option.

4. A put option you wrote on YYY stock has a strike price of $29.00.

The put premium on the option was $0.19 when you wrote the option.

5. A put option you are holding on ZZZ stock has a strike price of $80.00.

The put premium on the option was $0.16 when you bought the option.

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Elin Hessel
Elin HesselLv2
28 Sep 2019

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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. Franklin’s 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?

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