Question

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $46.

  

						Calls							Puts
Option and				Strike
NY Close	Expiration			Price		Vol.			Last				Vol.			Last
Macrosoft
		Feb		47			104			2.13				59			3.13
		Mar		47			80			2.37				41			3.54
		May		47			41			2.65				30			3.96
		Aug		47			22			2.86				22			4.00

  

a.	Suppose you buy 29 contracts of the February 47 call option. How much will you pay, ignoring commissions? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

    

Cost

$

  

Suppose you buy 29 contracts of the February 47 call option and Macrosoft stock is selling for $49 per share on the expiration date.

   

b-1.	How much is your options investment worth? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Payoff

$

  

b-2.	What if the terminal stock price is $48? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Payoff

$

   

Suppose you buy 29 contracts of the August 47 put option.

   

c-1.	What is your maximum gain? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Maximum gain

$

   

c-2.	On the expiration date, Macrosoft is selling for $42 per share. How much is your options investment worth? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Position value

$

  

c-3.	On the expiration date, Macrosoft is selling for $42 per share. What is your net gain? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Net gain

$

   

Suppose you sell 29 of the August 47 put contracts.

  

d-1.	What is your net gain or loss if Macrosoft is selling for $42 at expiration? (A loss amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

(Click to select)GainLoss

$

  

d-2.	What is your net gain or loss if Macrosoft is selling for $50 at expiration? (A loss amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

(Click to select)GainLoss

$

   

d-3.	What is the break-even price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Break-even

$

Answer 1

a]

premium paid = number of contracts * premium per contract

premium paid = 29 * 2.13 ==> $61.77 , or rounded off to $62

b1]

Payoff = (stock price on expiry - strike price - premium paid per contract) * number of contracts

Payoff = ($49 - $47 - $2.13) * 29 ==> -$3.77, or rounded off to -$4 (loss)

b2]

Payoff = ($48 - $47 - $2.13) * 29 ==> -$32.77, or rounded off to -$33 (loss)

c1]

As the position is a long option position, the maximum gain is unlimited and the maximum loss is limited to the amount of premium paid to buy the options