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Use the following information on call and put options for Facebook to answer the questions. a. What

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Use the following information on call and put options for Facebook to answer the questions.

Facebook Underlying stock price: 114.19 Call Put Open Expiration Strike Price Volume Interest Price Volume Interest Open 100.00 15.10 100.00 18.80 Aug 40 1632 1.00 247 3483 Dec 646 3.89 77 1841 100.00 19.19 2510 100.00 22.58 Jan 29807 4.58 184 20086 Jun 102 217 7.60 295 Aug 110.00 7.25

a. What is the intrinsic value of the call option that expires in June and has a $100.00 strike price?

b. What is the intrinsic value of the put option that expires in January and has a $100.00 strike price?

c. Briefly explain why a call with a $110 strike price sells for less than a call with a $100 strike price (for all expiration dates), while a put with a $110 strike price sells for more than a put with a $100 strike price (for all expiration dates).

d. Suppose you buy the June call with a strike price of $110. If you exercise it when the price of Facebook is $125, what will be your profit or loss? (Remember that each options contract is for 100 shares of stock.)

e. Suppose you buy the June put with a strike price of $110 at the price listed, and the price of Facebook stock remains at $114.19. What will be your profit or loss?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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Facebook Underlying stock price: 114.19 Call Put Open Expiration Strike Price Volume Interest Price Volume Interest Open 100.00 15.10 100.00 18.80 Aug 40 1632 1.00 247 3483 Dec 646 3.89 77 1841 100.00 19.19 2510 100.00 22.58 Jan 29807 4.58 184 20086 Jun 102 217 7.60 295 Aug 110.00 7.25 344 3260 3.14 586 6918 Dec 110.00 11.50 7 3393 7.09 7 4995 Jan 110.00 12.60 1351 2013 7.85 664 11074 Jun 110.00 16.37 23 329 11.30 4. 682

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a The intrinsic value of the call option is the market price minus the strike price whic...View the full answer


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A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

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