Question

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $40.

                                                                                    Calls                                        Puts

Option              Expiration         Strike Price       Volume            Last                  Volume            Last

Microsoft          Feb                  38                    85                    2.35                  37                    0.24

                        March              38                    61                    3.15                  22                    0.93

                        May                 38                    22                    4.87                  11                    2.44

                        August             38                    3                      6.15                  3                      3.56

A) Suppose you buy 10 contracts of the February 38 call option. How much will you pay, ignoring transaction costs?

B) In part A), Microsoft is selling for $43 per share on the expiration date. How much is your options investment worth?

C) Suppose you buy 10 contracts of the August 38 put option. What is your maximum gain? On the expiration date, Microsoft is selling for $32 per share. How much is your options investment worth? What is your net gain?

D) In part C), suppose you sell 10 of the August 38 put contracts. What is your net gain or net loss if Microsoft is selling for $34 at expiration What is the break-even price, that is, the terminal price that results in a zero profit?

Answer 1