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Section__11__Options

Section__11__Options - Section#11 Options and Convertibles...

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Section #11 Options and Convertibles April 15th, 2009
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1. Macrosoft: Option and NY Close Strike Price Expiration Call Vol. Call Last Put Vol. Put Last acrosoft 114 110 Feb 85 7.60 40 .60 114 110 Mar 61 8.80 22 1.55 114 110 May 22 10.25 11 2.85 114 110 Aug 3 13.05 3 4.70
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a. Suppose that you buy 10 contracts of the February 110 call. How much will you pay, ignoring commissions? (10 contracts)(100 shares/contract)($7.60/share) = $7,600
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b. In part (a), suppose that Macrosoft stock is selling for $140 per share on the expiration date. How much is your options investment worth? What if the terminal stock price is $125? If the terminal stock price is $140, your investment is worth: (10 contracts)(100 shares/contract)($140/share- $110/share) = $30,000 If the terminal stock price is $125, your investment is worth: (10 contracts)(100 shares/contract)($125/share- $110/share) = $15,000
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c. Suppose you buy 10 contracts of the August 110 put option. What is your maximum gain from the trade? The cost of the 10 put option contracts is: (10 contracts)(100 shares/contract)($4.70/share) = $4,700 (10 contracts)(100 shares/contract)($110/share- $0/share) - $4,700 = $110,000 - $4,700 = $105,300 The best case scenario for the put owner is if the terminal stock price is $0. In that case, your maximum net gain is:
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If Macrosoft is selling for $104 per share at expiration, how much is your options investment worth? What is your net gain? The options investment is worth: (10 contracts)(100 shares/contract)($110/share- $104/share) = $6,000 Your net gain is: $6,000 - $4,700 = $1,300
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d. In part (c), suppose you sell 10 of the August 110 put contracts. What is your net gain or loss if Macrosoft is selling for $103 at expiration? The proceeds of the put sale are $4,700 (see above). $4,700 - (10 contracts)(100 shares/contract)($110/share- $103/share) = $4,700 - $7,000 = - $2,300 This is a $2,300 loss! If on the expiration date the stock price is $103/share, your net gain is:
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What is your net gain or loss if Macrosoft is selling for $132 at expiration?
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