1. For all questions in this section. Option quotations on a stock are shown bel

Question

1. For all questions in this section. Option quotations on a stock are shown below. The current stock price, S, is $104 per share. The August 90 CALL option is:

2. Calculate the intrinsic value of the August 90 CALL per contract

3.The TIME VALUE per share of the August 90 CALL is:

4.If the August 90 CALL expires at-the-money, the August 90 PUT would expire

5.If the option expires out-of-the money, your gain or loss per contract is:

6.If the option expires at-the-money, your gain or loss per contract is:

Explanation / Answer

Calculate the intrinsic value of the August 90 CALL per contract

Intrinsic value= Stock price- Strike Price

=104-90

Intrinsic value=14

3.The TIME VALUE per share of the August 90 CALL is:

Time value= Total premium- Intrinsic Value

=15.625-14

Time value=1.625

4.If the August 90 CALL expires at-the-money, the August 90 PUT would expire at the money

5.If the option expires out-of-the money, your gain or loss per contract is:

If the option expires out of the money, it will not be exercised and loss would be equal to premium paid in buying option i.e 15.625

6.If the option expires at-the-money, your gain or loss per contract is:

If the option expires out of the money, it will not make in difeerence between option being exercised or not exercised and loss would be equal to premium paid in buying option i.e 15.625

7. What is the maximum gain that the writer of the Oct 115 PUT stands to make?

Writer of the put stands to gain when option is not exercised and it is limited to premium earned i.e 16

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