Question

Below is information on exchange traded options: stock trades at $6.40

Call and Put options
Option	Expiry	Last Price	Vol.	Strike
Call	Jun 2020	2.90	10	4.00
Call	Sep 2020	0.45	40	7.00
Put	Sep 2020	2.35	15	8.00
Put	Dec 2020	6.85	-	11.00

1) Which options (if any) are out of the money? Which options (if any) are in the money? No calculations required. No explanations required.

2) Based on information provided in question 1, calculate the time value of the Jun 2020 call option?

3) Based on information provided in question 1, calculate the intrinsic value (exercise value) of the Sep 2020 put option?

4) Refer to information provided in question 1. You purchased one Sep 2020 put contract today at $2.35. Two months later the stock trades at $7.80 and the premium on the put is $0.10. Is this put contract worth exercising? Briefly explain. No calculations required.

5) Refer to information provided in question 1. You purchased ten Jun 2020 call option contracts today for a premium of $2.75 and you sold them on the expiry date (Hint: we did not forget to give you the selling price). Calculate your total profit (or loss) if the stock was trading at $7.20 at expiry.

Answer 1

1.

Option	Expiry	Strike	CMP of Stock	ITM/OTM
Call	June	4	6.4	ITM
Call	Sept	7	6.4	OTM
Put	Sept	8	6.4	ITM
Put	Dec	11	6.4	ITM

2.

Option	Expiry	Strike (A)	Price of Call (B)	CMP of Stock = C	Interinsic Value (C-A) = D	Time Value B-D
Call	June	4	2.9	6.4	2.4	0.5

3.

Option	Expiry	Strike (A)	Price of Put (B)	CMP of Stock C	Interinsic Value (A-C)
Put	Sept	8	2.35	6.4	1.6

4. Yes the Put option is worth excercising

We will get a payoff from put option of (8-7.8) = 0.20

which is more than the current premium of 0,10

5. Strike price of the call option is 4

Current price of the stock is 7.2

We will ger a payoff of (7.2 - 4) = 3.2 from this call option

Premium paid on 10 calls (2.75*10)	27.5
Payoff from 10 calls (3.2*10)	32
Profit (32-27.5)	4.5