Question

You bought a call option on July 27, 2020 at the exercise price of $65. It expires on October 26, 2020. The stock currently sells for $66., while the call option sells for $6.

A stock that is currently selling for $47 has the following six-month options outstanding:

	Strike Price	Market Price
Call Option	$45	$4
Call Option	$50	$1

1. Which option(s) is (are) in the money?

2. Which option(s) is (are) at the money?

3. Which option(s) is (are) out of the money?

4. What is the profit (loss) at expiration given different prices of the stock ($30, $35, $40, $40, $45, $50, $55, and $60) if the investor buys the call with $60 strike price?

5. What is the profit (loss) at expiration given different prices of the stock ($30, $35, $40, $40, $45, $50, $55, and $60) if the investor buys the call with $45 strike price?

Answer 1

Q1:

In the money option :

• call option with July 27, 2020 expiry at the exercise price of $65
• For 2nd stock ; call option with strike price of 45

Q2:

At the money:

No options are at the money since no option has strike price and call price same

Q3:

Out of the money option :

• For 2nd stock ; call option with strike price of 50

Q4:

Call 60 strike price
Price at expiry E	strike price S	Premium P	Payoff=max(E-S,0)	Profit= Payoff-P
30	60	6	0	-6
35	60	6	0	-6
40	60	6	0	-6
45	60	6	0	-6
50	60	6	0	-6
55	60	6	0	-6
60	60	6	0	-6
65	60	6	5	-1

Q5:

Call 45 strike price
Price at expiry E	strike price S	Premium P	Payoff=max(E-S,0)	Profit= Payoff-P
30	45	4	0	-4
35	45	4	0	-4
40	45	4	0	-4
45	45	4	0	-4
50	45	4	5	1
55	45	4	10	6
60	45	4	15	11
65	45	4	20	16