Question

Use the option quote information shown below to answer the questions that follow. The stock is currently selling for $36.

Option and						Calls						Puts
NY Close	Expiration			Strike Price		Vol.			Last			Vol.			Last
Macrosoft
		February		37			94			1.13			49			2.13
		March		37			70			1.37			31			2.54
		May		37			31			1.65			20			2.96
		August		37			12			1.86			12			3.00

a. Suppose you buy 19 contracts of the February 37 call option. How much will you pay, ignoring commissions? (Do not round intermediate calculations.)

Cost           $  

Suppose you buy 19 contracts of the February 37 call option and Macrosoft stock is selling for $39 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 $38? (Do not round intermediate calculations.)

Payoff           $  

Suppose you buy 19 contracts of the August 37 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 $32 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 $32 per share. What is your net gain? (Do not round intermediate calculations.)

Net gain           $  

Suppose you sell 19 of the August 37 put contracts.

d-1. What is your net gain or loss if Macrosoft is selling for $33 at expiration? (Input your answer as a positive value. Do not round intermediate calculations.)

(Click to select)  Gain  Loss             $  

d-2. What is your net gain or loss if Macrosoft is selling for $40 at expiration? (Input your answer as a positive value. Do not round intermediate calculations.)

(Click to select)  Gain  Loss             $  

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) Cost of option is premium. february call option of strike price 37 is available at 1.13, to buy 19 contract one need to pay = 19*1.13 = 21.47$

b1) if price at expiry is 39$ then total profit = 19(39-37)-21.47

=38-21.47 = 16.53$

b2) if price at expiry is 38$ then total profit = 19(38-37)-21.47

=19-21.47 = -2.47$

c1) Cost of option is premium. August put option of strike price 37 is available at 3 to buy 19 contract one need to pay = 19*3 = 57$

Maximum profit occurs when stock price becomes 0 , hence maximum profit = 19(37-0) - 57

=703-57

=646$

C2) if price at expiry is 32$ then option investment is worth = 19(37-32) = 95$

C3) if price at expiry is 32$, net profit = 95 - 57 = 38$

d1) net gain or loss if Macrosoft is selling for $33 at expiration

=Premium received (since other party wont exercise call)

=(19*1.86)

=35.34$

d2) net loss if Macrosoft is selling for $40 at expiration

=Premium received - Loss on exercise of call

=(19*1.86) - 19 (40-37)

=35.34 - 57

=-21.66

d3) At price of 37+1.86 = 38.86$ there will be no profit no loss