Question

Use the option quote information shown below to answer the questions that follow. The stock is currently selling for $30.

Option and						Calls						Puts
NY Close	Expiration			Strike Price		Vol.			Last			Vol.			Last
Macrosoft
		February		31			88			.53			43			1.53
		March		31			64			.77			25			1.94
		May		31			25			1.05			14			2.36
		August		31			6			1.26			6			2.40

a. Suppose you buy 13 contracts of the February 31 call option. How much will you pay, ignoring commissions? (Do not round intermediate calculations.)

Cost           $

Suppose you buy 13 contracts of the February 31 call option and Macrosoft stock is selling for $33 per share on the expiration date.

b-1. How much is your options investment worth? (Do not round intermediate calculations.)

Payoff           $

b-2. What if the terminal stock price is $32? (Do not round intermediate calculations.)

Payoff           $

Suppose you buy 13 contracts of the August 31 put option.

c-1. What is your maximum potential gain? (Do not round intermediate calculations.)

Maximum gain           $

c-2. On the expiration date, Macrosoft is selling for $26 per share. How much is your options investment worth? (Do not round intermediate calculations.)

Position value           $

c-3. On the expiration date, Macrosoft is selling for $26 per share. What is your net gain? (Do not round intermediate calculations.)

Net gain           $

Suppose you sell 13 of the August 31 put contracts.

d-1. What is your net gain or loss if Macrosoft is selling for $28 at expiration? (Input your answer as a positive value. Do not round intermediate calculations.)

(Click to select)GainLoss            $

d-2. What is your net gain or loss if Macrosoft is selling for $34 at expiration? (Input your answer as a positive value. Do not round intermediate calculations.)

(Click to select)LossGain            $

d-3. What is the break-even price, that is, the terminal stock price that results in zero profit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Break-even           $

Answer 1

a	The asked price of one call is $ 0.53 which controls 100 shares of Macrosoft stock
	So for 13 contracts the total expensiture would be 13 contracts * 100 shares *0.53								$689
	Cost	$689
b-1	Suppose you buy 13 contracts of the February 31 call option and Macrosoft stock is selling for $33 per share on the expiration date.
	Investment worth	?
	If the stock price at expiration is $ 33, than payoff would be
	13*100*(33-31)		2600
	The investment return would be 2600-689					$1,911
b-2	Terminal stock price is $ 32
	if the stock price at expiration is $ 32, than payoff would be
	13*100*(32-31)		1300
	The investment return would be (1300-689)					$611
c-1	Suppose you buy 13 contracts of the August 31 put option.
	Maximum Gain	?
	The cost of put options would be
	13*100*2.40		3120
	Maximum gain would occur on the put option of price of Macrosoft stock dropped to $ 0
	The options would than generate a payoff of
	(13*100*31)		40300
	Maximum gain would be 40300-3120			$37,180
	If macrosoft is selling for $ 26
c-2	Payoff =13*100*(31-26)		$6,500
c-3	Profit = 6500-3120		$3,380
d-1	Suppose you sell 13 of the August 31 put contracts.
	What is your net gain or loss if Macrosoft is selling for $28 at expiration?
	At a stock price of $ 28 the put is in the money which means that the put option can be exercised at a profit
	Net Loss = $3120 - (13*100*(31-28))
	Put premium - loss on the put		3120
	Net Loss = - $780		3900
			-780
d-2	What is your net gain or loss if Macrosoft is selling for $34 at expiration?
	At a stock price of $ 34 the put is out of the money so the writer would pick up the entire put premium of $ 3120
d-3	13*100(31-St) = $ 3120
	40300 - 3120 = 1300 St
	St = $ 28.60
	Break even	$28.60
	For terminal stock prices above $ 28.60 makes a profit