option_strategies_handout

# option_strategies_handout - BASIC OPTION STRATEGIES Example...

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Example 1 : ABC trades at \$97.50. ABC calls with an exercise price of \$95 trade at \$6.25 and ABC puts with an exercise price of \$93 trade for \$0.90. What are the intrinsic values and time values for these options? Intrinsic Value Time Value ABC 95 Calls P-X = (97.50 – 95)=\$2.50 Vc – IV = (6.25 – 2.50)=\$3.75 ABC 93 Puts X-P = \$0 Vp – IV = \$0.90 Example 2 : An investor buys a call option with a strike price of \$35. The option price is \$6.50. Draw a payoff table and a profit/loss diagram. What is the breakeven price? What is the maximum gain on this position? What is the maximum loss? If at maturity the stock price is \$43, what is the total profit/loss? Price of stock @ expiration 25 30 35 40 45 Cost of Call Gain/loss Net payoff Example 3 : An investor writes a call option with a strike price of \$35. The option price is \$6.50. Draw a payoff table and a profit/loss diagram. What is the breakeven price? What is the maximum gain on this position? What is the maximum loss? If at maturity the stock price is \$43, what is the total profit/loss? Price of stock @ expiration 25 30 35 40 45 Cost of Call Gain/loss Net payoff Example 4 : An investor buys a put option with a strike price of \$20. The option price is \$4.00. Draw a payoff table and a profit/loss diagram. What is the breakeven price? What is the maximum gain on this position? What is the maximum loss? If at maturity the stock price is \$22, what is the total profit/loss? Price of stock

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option_strategies_handout - BASIC OPTION STRATEGIES Example...

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