Question

Questions 26-30 are based on the following stock option quote of GEM Corp, whose stock price is $112 today.

Prices Call Put Stock$ Strike$ Exp. Vol. Last $ Vol. Last $ 112 110 Aug 35 3.375 23 0.875 112 110 Sept 45 4.625 11 1.500 112 115 Aug 31 1.500 12 4.625 112 115 Sept 34 2.625 10 4.125

PRICES				CALL		PUT
STOCK$	STRIKE $	EXP.	VOL.	LAST $	VOL.	LAST $
112	110	AUG	35	3.375	23	.875
112	110	SEPT	45	4.625	11	1.500
112	115	AUG	31	1.500	12	4.625
112	115	SEPT	34	2.625	10	4.125

26. Which GEM options appears to be mispriced?

a. Aug 110 Call

b. Aug 115 Call

c. Sept 115 Call

d. Aug 110 Put

e. None of the above answers is correct.

27. Which of the following is a TRUE statement regarding the GEM stock options?

a. The Sept 110 put options are in the money.

b. The Aug 115 call options are in the money

c. The Sept 115 put options are in the money

d. None of the above.

28. What is the intrinsic value today of a Sept 110 call option (rounded to the nearest penny)? In other words, how much would the call option be worth on the expiration date, ignoring the time value of options?

a. $2.00

b. $2.63

c. $5.00

d. $0.00

e. None of the above.

29. Suppose you bought ten call contracts of the GEM Aug 110 options. Just before the options expire, the stock is selling for $115. What is your net profit or loss to the nearest dollar, assuming you exercise the options just before expiration?

a. $1,625 net loss

b. $1,625 net gain

c. $3,375 net loss

d. $33.75 net loss

30. Suppose you originally sold (or wrote) twenty contracts of GEM Sept 115 put options. What is your net gain or loss if the stock price is $128 at the time the options expire?

a. $8,250 gain.

b. $8,250 loss.

c. $17,750 gain.

d. $17,750 loss.

e. None of the above.

Answer 1

I have answered the question below

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Answer:

26)

27)

28)

29)

Net profit = option payoff -call cost

= 5*1000 - 3.375*1000

= 1625 net gain

30)

Net profit = Put writeoff (as it it out of money)

= 4.125*20*1000 = $8,250 net gain