Question

Problem 13 Refer to the stock options on IBM in the following table Expiration Jul Strick Last 50 5.00 Call Volume Open Interest 32874 46311 | Last 14.00 Put Volume Open Interest 15148 9711 nat will be the profit/loss and the return to an investor who buys the call in the following scenarios for stock prices in six months? Fill in the following table. Answer: Stock Price 45 50 Initial Cost ($) Profi/Loss ($) Return 50 To 0% SO 1sts)=0%" od 0%* 55 50 What will be the profit/loss and the return to an investor who buys the put in the following scenarios for stock prices in six months? Fill in the following table. Stock Price 50 O 50 Initial Cost ($) Profi/Loss ($) Return 10% SO 50 5 (5-4): 5-20% L0% x 55

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

ДА В D CALL Last Price $5.00 Ε PUT Last Price $4.00 | Expiration Jul Strike Price $50.00 CALL Option Stock Price $45.00 $50.00 $55.00 Initial Cost $5.00 $5.00 $5.00 Profit/Loss -$5.00 $5.00 $0.00 Return -100% -100% 0% L L 11 2 PUT Option Stock Price $45.00 $50.00 $55.00 Initial Cost $4.00 $4.00 $4.00 Profit/Loss $1.00 -$4.00 -$4.00 Return 25% -100% -100% P/L of Call = Max(Stock Price at expiration - Strike Price, 0)-Call Price P/L of Put = Max Strike Price - Stock Price at expiration, 0)-Put Price Initial Cost to Buy an option = Option price

Cell reference -

A B C CALL Last Price PUT Last Price Strike Price Expiration Jul 50 1 CALL Option Stock Price 45 7 8 Initial Cost =$D$3 =$D$3 =$D$3 Profit/Loss =MAX(B7-$C$3,0)-C7 =MAX(B8-$C$3,0)-C8 =MAX(B9-$C$3,0)-C9 Return =D7/07 =D8/C8 =D9/09 50 55 11 2 12 13 PUT Option Stock Price 45 50 14 Initial Cost =$E$3 =$E$3 =$E$3 Profit/Loss =MAX($C$3-B13,0)-C13 =MAX($C$3-B14,0)-C14 =MAX($C$3-B15,0)-C15 Return | =D13/C13 =D14/C14 =D15/C15 P/L of Call = Max(Stock Price at expiration - Strike Price,0)-Call Price P/L of Put = Max Strike Price - Stock Price at expiration,) -Put Price Initial Cost to Buy an option = Option price

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.