Question

OPTION PROBLEM – 6 PARTS Show your work and label your answers in the space provided on the MSExcel answer sheet Assume that you have purchased 1 call option on Arizona Tea Co. stock with an exercise price of $45. At that time of your purchase the stock was trading for $48.50 per share and the option price was 5.25 per share.

A. How much will it cost you to purchase this option, in total?

B. Is this option in the money?

C. What is the intrinsic value of this option at the time of purchase? On the expiration date, the stock is selling for $49.90 a share.

D. What is the payoff to this option at expiration?

E. If you exercise this option on expiration day, what is your profit or loss on the trade, in dollars?

F. What is the profit or loss on your option investment, in percent?

Answer #1

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A
stock is trading for $78 per share and the July 80 call is trading
for $1.25. What is the profit or loss in dollars and in percentage
for both the stock and the option if the stock increases to $85 per
share at July expiration (call will trade at its intrinsic value at
expiration)? What is the loss in price and percentage for the stock
and the option if the stock falls to $70 per share at July
expiration?

Please explain work
Suppose you bought a CALL option on a share of Tesla stock
(Strike Price $200, Expiration Date 11/1/2020) today for a price of
$4.99. On the expiration date, the price of a share of Tesla is
$300. Answer the following questions using the information
above.
Is it in your best interest to exercise the CALL option?
Why?
What is your Payoff?
Your profit is (nearest dollar)?

Assume that you have shorted a call option on Intuit stock with
a strike price of $31; when you originally sold (wrote) the
option, you received $5. The option will expire in exactly three
months' time.
a. If the stock is trading at $ 36 in three months, what will
your payoff be? What will your profit be?
b. If the stock is trading at $ 25 in three months, what will
your payoff be? What will your profit be?...

Use the following option information to work problems 28-31. The
following information is available regarding call and put options
on MSFT. Exercise Price Call Price Put Price $185.00 $3.80 $1.53
187.50 2.40 2.54 190.00 1.43 4.02 Current price of MSFT is $187.28
28. Construct a long call position using the call with an exercise
price of $187.50. Make sure to graph the position at option
expiration showing the maximum loss, maximum profit and stock price
break even. 29.) Construct a...

You purchase one SDB $125 strike price call contract (equaling
100 shares) for a premium of $5. You hold the option until the
expiration date, when SDB stock sells for $123 per share. What will
be your payoff at expiry? What will be your profit/loss?
You write one SDB $120 strike price put contract (equaling 100
shares) for a premium of $4. You hold the option until the
expiration date, when SDB stock sells for $121 per share. What will...

The current price of Stock A is $305/share. You believe that the
price will change in the near future, but your are not sure in
which direction. To make a profit from the price change, you
purchase ONE call option contract (each contract has 100 calls) and
TWO put option contracts (each contract has 100 puts) at the same
time. The call option and the put option have the same expiration
date. The strike price of the call option is...

The current price of Stock A is $305/share. You believe that the
price will change in the near future, but your are not sure in
which direction. To make a profit from the price change, you
purchase ONE call option contract (each contract has 100 calls) and
TWO put option contracts (each contract has 100 puts) at the same
time. The call option and the put option have the same expiration
date. The strike price of the call option is...

CoStar Group stock price is $590 and the premium for September
CoStar stock call option with strike price X=$550
is $45.30. You just wrote the call option
for C=$45.30.
1) For the option premium, how much are the intrinsic value and
time value? (4 points)
2) What would be your profit / loss if the stock price of Google
is $525 on the expiration date? (3 points)
3) What would be your profit / loss if the stock price...

On 10 May an investor sells a six-month put option on 1,000
shares of a stock. The current stock price $39 and the exercise
price of the put option is $40. The price of the put option is
$2.30 per share. At expiration date on 10 November, the stock price
is $36.90. The option is cash settled.
(a) What is the cash flow of the investor on 10 May?
(b) What is the payoff on the option on 10 November?...

Consider the following options portfolio. You write an August
expiration call option on IBM
with exercise price $150. You write an August IBM put option with
exercise price $145.
a. Graph the payoff of this portfolio at option expiration as a
function of IBM’s stock price at
that time.
b. What will be the profit/loss on this position if IBM is selling
at $153 on the option expiration
date? What if IBM is selling at $160? Use the data in...

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