A buys the following put option:

85 Exxon Mobil May @$5
Exxon Mobil is currently trading for $84 per share.
On the third Friday in May, A still owns the put. What will A's gain or loss on the put be if Exxon Mobil closes at the following prices: 102, 75, 84?

 

3. A and B enter into two contracts with each other at the same time. Neither A nor B owned any shares of IBM at the time they entered into the contracts. If, at any time under the contracts, B sells shares of IBM to A, B will acquire the shares in the marketplace and pay the market price at that time. If A acquires shares from B under the contracts, A will immediately sell the shares for their market price at that time. The two contracts are as follows:

Contract 1: A has the right but not the obligation to buy 100 shares of IBM from B for $100 per share at any time between the date the contract was entered into and July 17, 2020. If A exercises this right, B must sell A the shares.

Contract 2: B has the right but not the obligation to sell 100 shares of IBM to A for $100 per share at any time between the date the contract is entered into and July 17, 2020. If B exercises this right, A must buy the shares.

Assume that both A and B wait until July 17 before they take any action under either contract. What happens to A and B if IBM is selling for $115 per share on July 17, 2020? What happens if it is selling at $80 per share? Your answer should include the amounts of money that A and B either made or lost on the transaction. Assume that A paid B $200 to enter into these contracts.

 

4. Rephrase the agreements between A and B in question 3 by using call and put options.

 

5. What event will always occur on July 17 between A and B as long as IBM is not trading at $100 per share? Why?

Answer rating: 100% (QA)

3 What happens to A and B if IBM is selling for 115 per share on July 17 2020 What happens if it is selling at 80 per share If IBM is selling for 115 ... View the full answer