The following information is for an Apple option (Expires 1/15/2021): Strike Price: 320.00 Last Price: 187.60...

The following information is for an Apple option (Expires 1/15/2021):

Strike Price: 320.00

Last Price: 187.60

Bid: 183.40

Ask: 185.25

Suppose you buy this option. What is the price that you pay? If the stock price on Jan 15th, 2021 is $325, will you exercise your call? What is the profit on your position?

If the stock price on Jan 15th, 2021 is $315, will you exercise your call? What is your payoff on your position?

Solutions

Expert Solution

1. Suppose you buy this option. What is the price that you pay?

The price we pay of the option will equal to ask rate = $185.25

2. If the stock price on Jan 15th, 2021 is $325, will you exercise your call? What is the profit on your position?

call option will be exercised when stock price is higher than the strike price since stock price on jan 15 is higher than strike price the option will be exercised

Profit/Loss = Stock price - strike price - premium paid

Profit/Loss = 325 - 320 - 185.25

Loss = $180.25

3. If the stock price on Jan 15th, 2021 is $315, will you exercise your call? What is your payoff on your position?

call option will be exercised when stock price is higher than the strike price since stock price on jan 15 is lower than strike price the option will be expired leaving a loss of premium paid

Loss = Premium paid

Loss = $185.25

jeff jeffy answered 1 year ago

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