Calculating Payoffs Use the option quote information shown here to answer the questions that...

Question

Calculating Payoffs Use the option quote information shown here to answer the questions that follow.

Option and

Strike

Calls

Puts

NY Close

Price

Expiration

Vol.

Last

Vol.

Last

Macrosoft

125

120

Feb

85

8.10

40

.55

125

120

Mar

61

9.60

22

1.50

125

120

May

22

11.45

11

2.75

125

120

Aug

3

13.90

3

4.60

a. Suppose you buy 10 contracts of the February 120 call option. How much will you pay, ignoring commissions?
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? Explain.
c. Suppose you buy 10 contracts of the August 120 put option. What is your maximum gain? On the expiration date, Macrosoft is selling for $114 per share. How much is your options investment worth? What is your net gain?
d. In part (c), suppose you sell 10 of the August 120 put contracts. What is your net gain or loss if Macrosoft is selling for $113 at expiration? For $132?

Robert · Accepted Answer

Solution A
Solution A
Cost = 10*100 shares * $8.10
= $8100
Solution B
Stock Price at expiration = $140
Payoff = 10*100*(140-120)
=$20000
If stock price at expiration = $125
Payoff = 10*100*(125-120)
= $5000
Solution C
Cost = 10*100*4.

Calculating Payoffs Use the option quote information shown here to answer the questions that follow. Option and Strike Calls Puts NY Close Price Expiration Vol. Last Vol. Last Macrosoft 125 120 Feb 85...

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