Question

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $33.

  

						Calls							Puts
Option and				Strike
NY Close	Expiration			Price		Vol.			Last				Vol.			Last
Macrosoft
		Feb		35			91			.83				46			1.83
		Mar		35			67			1.07				28			2.24
		May		35			28			1.35				17			2.66
		Aug		35			9			1.56				9			2.70

  

a.	Suppose you buy 16 contracts of the February 35 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 16 contracts of the February 35 call option and Macrosoft stock is selling for $36 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 $35? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Payoff

$

   

Suppose you buy 16 contracts of the August 35 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 $29 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 $29 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 16 of the August 35 put contracts.

  

d-1.	What is your net gain or loss if Macrosoft is selling for $31 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 $37 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

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

w ENG 12:40 16-05-2020 B 26 х C01187 f CF CG CH CI CU CK CL CM CN CO CP CO CR CS C- MACROSOFT a COST february 35 call EACH CONTRACT IS OF 100 SHARES 16 X 100 X 0.83= $ 1,328 b-1 ON EXPIRY, PRICE IS 36 PAY OFF = 16* (36-35)*100 = $ 1,600 b-2 ON EXPIRY, PRICE IS 35 PAY OFF = 16*(35-35)*100 = 0 C-1 16 CONTRACT OF AUG 35 PUT OPTION 11871 1188 1189 1190 1191 1192 1193 1194 1195 1196 1197 1198 1199 1200 1201 1202 1203 1204 1205 1206 1207 1208 1209 1210 COST 16 X 100 X 2.7 = $ 4,320 MAXIMUM GAIN WOULD OCCUR, IF STOCK PRICE GOES TO ZERO MAXIMUM GAIN = 16*(35-0)*100 - 4320 = $ 51,680 C-2 ON EXPIRY, PRICE =29 PAY OFF = 16" (35-29)*100 = $ 9,600 C-3 NET GAIN PAYOFF-COST = 9600 - 4320 = $ 5,280 NPV OCF CASH FLOW STATW FCF ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET TAX HEDGING MONEY MARK ... k... +

w ENG 12:40 16-05-2020 B 26 х C01230 f CF CG CH CI CU CK CL CM CN CO CP CQ CR CS C-3 NET GAIN PAYOFF-COST = 9600 - 4320 = $ 5,280 1207 1208 1209 1210 1211 1212 1213 d-1 ON EXPIRY, PRICE =31. AS YOU ARE A WRITER OF PUT OPTION, YOU WILL MAKE LOSS IF PRICE GOES DOWN NET GAIN = 4320 - 16"(35-31)* 100 = $ -2,080 1214 d-2 ON EXPIRY, PRICE =37 PUT OPTION IS OUT OF MONEY WRITER WILL MAKE PROFIT EQUAL TO PREMIUM RECEIVED NET GAIN $ 4,320 d-3 1215 1216 1217 1218 1219 1220 1221 1222 1223 1224 1225 BREAKEVEN PRICE MEANS THAT LOSS SHOULD BE ZERO, THAT IS PREMIUM PAID SHOULD BE COVERED 16*(35 - PRICE)*100 = 4320 35 - PRICE = 2.7 PRICE = 32.3 BREAKEVEN $ 32.30 1226 1227 1228 1229 1230 NPV OCF CASH FLOW STATW FCF ARM, MSI.confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET TAX HEDGING MONEY MARK ...