Question

1. The following questions refer to options on SNAP (Ticker: SNAP), which closed today at $22.59/share.  Below are a table of closing prices on SNAP options on 8/31/2020:

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Strike              Expiration                   Calls                Puts________

20                    October, 2020                        $3.30               $0.71

21                    October, 2020                        $2.61               $1.04

22                    October, 2020                        $2.04               $1.44

23                    October, 2020                        $1.55               $1.95

24                    October, 2020                        $1.15               $2.54

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1. Which of these options are in-the-money?
2. Suppose you think that the price is unlikely to remain above $23 during the next month so you write a call with a strike of $23.  Create a table of values of your call position as a function of the price of SNAP at the expiration of the option position.  Use share prices in intervals of $0.25 in the range from $20 to $25.
3. What if instead of the call you purchased a put with a strike of $23.  Create a similar table of values as in (b).  
4. Plot the values depicted in your tables from parts (b) and (c)
5. Suppose instead that you are bullish on SNAP stock and decide to buy calls with a strike of $22.  Give a table of values of your spread as a function of the underlying stock of SNAP at the expiration date of the option, and finally, plot the payout as a function of the underlying stock price at expiration.

Answer 1

Part a)

option with the strike price of 20 ,21, 22 are in the money because strike price is less than 22.59

Similarly put option 23 and 24 is in the money

In the money" (ITM) is an expression that refers to an option that possesses intrinsic value. ITM thus indicates that an option has value in a strike price that is favorable in comparison to the prevailing market price of the underlying asset:

An in-the-money call option means the option holder has the opportunity to buy the security below its current market price.

An in-the-money put option means the option holder can sell the security above its current market price.