Question

a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit would be, and what the percentage return would be. (Enter “O” if there is no profit or return from not exercising the option. Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places.) Company Option Strike In/Out of the Money? Premium Exercise? Profit Return ABC Call 0.86 АВС Put Today's Stock Price $ 10.26 $ 10.26 $ 23.93 $ 23.93 10 10 25 25 0.71 ABC Call 0.81 ABC Put 2.01

Answer 1

A purchased CALL option is In the money when the stock price is greater than the strike price of the stock on expiry.

A purchased PUT option is In the money when the stock price is lesser than the strike price on expiry.

In both the above cases, I, the buyer of the option will exercise the option as it is in the money. However my net profit will be (Today's price - Strike price) - Premium paid on every option exercised. In case option does not exercised, my net loss is the premium paid.

From the given tables, applying the above logic.

Company	Option	Strike	Today's stock price	In/out of the money	premium	Exercise?	Profit	Return%
ABC	Call	10.00	$ 10.26	In	0.86	Yes	-0.60	-69.76%
ABC	Put	10.00	$ 10.26	Out	0.71	No	-0.71	0
ABC	Call	25.00	$ 23.93	Out	0.81	No	-0.81	0
ABC	Put	25.00	$ 23.93	In	2.01	Yes	-0.94	-46.76%

Company	Option	Strike	Today's stock price	In/out of the money	premium	Exercise?	Profit	Return%
ABC	Call	10.00	$ 11.23	In	0.86	Yes	0.37	43.02%
ABC	Put	10.00	$ 11.23	Out	0.71	No	-0.71	0
ABC	Call	25.00	$ 27.00	In	0.81	Yes	1.19	146.91%
ABC	Put	25.00	$ 27.00	Out	2.01	No	-2.01	0