a You have just purchased the options listed below Based on

a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit would be, and what the percentage return would be. (Enter \"O\" if there is no profit or return from not exercising the option. Round your answer to 2 decimal places.) Company Option Strike Today\'s Stock In/Out of the Profit Price $10.26 $10.26 $23.93 $23.93 Premium Exercise? (Click to select) v (Click to select) (Click to select) v (Click to select) v Return ABC ABC ABC ABC Call Put Call Put 10 10 25 25 Money? (Click to select) 1.02 (Click to select)0.87 (Click to select) 0.97 (Click to select)2.17 b. Now suppose that time has passed and the stocks\' prices have changed as indicated in the table below. Recalculate your answers to part a. Company Option Strike Today\'s Stock In/Out of the Money? (Click to select)1.02 (Click to select)v (Click to select) 0.87 (Click to select) v Click to select) 0.97 (Click to select) (Click to select2.17Click to select) v Profit Price $11.23 $11.23 $27.00 $27.00 Premium Exercise? Return Call Put Call Put 10 10 25 25 ABC ABC ABC

Solution

a. In the money...........yes..........Profit = Max [0, (Spot Price – Strike Price)] – Premium Paid = 10.26 - 10 -1.02 = -.76…..... Return = profit/Cost = 0

b.Out of the money........no........ Profit= [Max (0, Strike Price – Spot Price)] – Premium Paid = 0....... Return = 0.

c. Out of the money......no..... Profit= Max [0, (Spot Price – Strike Price)] – Premium Paid = 0..... Return = 0.

d. In the money....yes.....Profit= [Max (0, Strike Price – Spot Price)] – Premium Paid = 25-23.93-2.17 = -1.1......Return=0.

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a.In the money....yes...... Profit = 11.23-10-1.02 = .21.... Return = .21/11.02=.019056 = 1.91%

b. Out of the money.....no.... Profit = 0..... Return = 0

c. In the money......yes.....profit = 27-25-.97= 1.03......Return = 1.03/24.03=.04286= 4.29%

d.out of the money.....no..... profit=0....Return =0