Question

November 27, 2015 h The Money Straddle Lookup Option Strike Contract Name 8.00 9.00 9.50 10.00 10.50 11.00 JCP151127C00008000 1 JCP151127C00009000 0.98 JCP151127C00009500 0 ЈСР151127С00010000 JCP151127C00010500 0.28 JCP151127C00011000 79 100 0.69 0.44 0.26 0.15 1.89 1.10 0.78 0.48 0.29 0.18 0.00 0.00 0.00 0.00 0.03 0.01 000% 0.00% 000% 000% 1200% -5.88% 56 45% 51.95% 50 00% 45.12% 43.75% 44.34% 1.62 0.74 13 24 19 51 0.40 105 0.16 41 Strike Contract Name 7.00 8.50 9.00 9.50 JCP151127P00007000 0.06 JCP151127P00008500 0.31 ЈСР151127Р00009000 0.41 JCP151127P00009500 0 0.03 0.18 0.29 0.47 0.08 021 0.33 0.50 0.00 0.00 0.00 0.00 0.00% 000% 0.00% 0.00% 24 24 67 58% 53 1396 50.20% 49 22% 0.65 32 Assume you purchased the right to sell 2,900 shares of JCPenney stock in November 2015 at a strike price of $7.00 per share Suppose the stock sells for $6.50 per share immediately before your options' expiration. What is the rate of return on your investment? What is your rate of return if the stock sells for $8.00 per share? Assume your holding period for this investment is exactly three months. (A negative value should be Indicated by a minus slgn. Do not round intermediate calculatlons. Enter your 3-month returns as a percent rounded to 2 decimal places.) Return on investment at $6.50 Return on investment at $8.00

Answer 1

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RIGHT TO SELL : MEANS A PUT OPTION STRIKE PRICE - ASK PRICE = SHARES NO OF CONTRACTS PREMIUM PAID $0.08 2900 29 (2900/100) $232.00 (0.08 X 29 X 100) NOW IF STOCK SELLS FOR $6.50 PAY OFF LESS: PREMIUM PAII 2 PROFIT [ =($7-$6.5)*29 * 100] 1,450.00 232.00 $ 1,218.00 RETURN ON INVESTMENT 525.00% ($1218/$232*100) (PROFIT/PREMIUM PAID * 100) ANS1 ANNUAL RATE OF RETURN 1524.88 % [ =(1+525%) 12/3)-1]