Question

Call Put

Option	Strike	Exp.	Vol.	Last	Vol.	Last
Cisco	15.00	Oct.	491	2.26	559	0.25
16.30	15.00	Nov.	259	2.90	154	1.00
16.30	17.50	Oct.	680	0.85	522	1.60
16.30	17.50	Nov.	142	1.33	40	2.31
16.30	17.50	Feb.	51	1.95	28	3.77
16.30	20.00	Oct.	828	0.30	915	4.05
16.30	20.00	Nov.	123	0.55	212	4.67

1. What is the cost to purchase one October 17.50 call contract on Cisco stock?

A. $290

B. $175

C. $85

D. $163

E. $680

2. What is the time value per share of the November 15 call?

A. $1.30

B. $1.40

C. $1.60

D. $1.90

E. $2.90

3. What is the time value per share of the November 15 put?

A. $0.00

B. $0.25

C. $1.00

D. $1.25

E. $1.30

4. Which of the options shown in the quote are in-the-money?

I. The October 15 call

II. The November 17.50 call

III. The October 15 put

IV. The November 20 put

A. I and II only

B. II and III only

C. I and IV only

D. III only

E. III and IV only

5. Suppose you bought 20 Cisco Oct 15 call contracts. Just before the option expires, the stock is selling for $18. What is your net profit (or loss)? Ignore transaction costs.

A. -$4,520

B. -$2,260

C. $0

D. $1,480

E. $6,000

6. Suppose you bought 10 Cisco Oct 20 put contracts. Just before the option expires, the stock is selling for $19. What is your net profit (or loss)? Ignore transaction costs.

A. -$4,050

B. -$3,050

C. -$1,000

D. $1,000

E. $3,700

Answer 1

1). Oct 17.50 call has a price of 0.85 so total price will be 0.85*100 = $85 (one contract is for 100 shares) Option C

2). Option price = intrinsic value + time value

Intrinsic value of a call = asset price - strike price = 16.30 - 15 = 1.30 (for Nov 15 call)

Nov 15 call price = 2.90

Time value = option price - intrinsic value = 2.90 - 1.30 = 1.60 (Option C)

3). Nov 15 put price = 1.00

Put is out of the money so intrinsic value is zero. Thus, time value of the put will be equal to the option price of $1.00 (Option C)

4). I - Oct 15 call is in the money as share price > strike price (16.30 > 15)

IV - Nov 20 put is in the money as strike price > share price (20 > 16.30) (Option C)

5). Oct 15 call price = 2.26

One call contract price = 2.26*100 = 226

Profit per contract = (share price - strike price)*100 - contract price = (18-15)*100 - 226 = 300 - 226 = 74

Profit on 20 call contracts = 20*74 = 1,480 (Option D)

6). Oct 20 put price = 4.05

One put contract price = 4.05*100 = 405

Loss per contract = (strike price - share price)*100 - contract price = (20-19)*100 - 405 = 100 - 405 = -305

Loss on 10 put contracts = 10*-305 = -3,050 (Option B)