Intel stock is currently trading at $33, and you think that the price of the stock will go down by Oct 16, 2015. For $3, you can buy a put Intel stock that expires on Oct 16, 2015, and that has an exercise price of $34.

1) What right does this put option give you?

 2)Suppose you buy the option and hold it until the expiration date. If the price of Intel on Oct 16, 2015, is S20, will you exercise your option? Is the option in-, at-, or out-of-the-money? What will be your net payoff from the option? 

3) What will be your net payoff from the option if the price is $38? Will you exercise your option? Is the option in-. at-, or out-of-the-money?

 

Transcribed Image Text:

C 1 2 1)Stock price (s) of Intel on May 2015 3 Exercise price (x) A 4 option price (c) 5 B D $33 $34 $3 E C 1 2 1)Stock price (s) of Intel on May 2015 3 Exercise price (x) A 4 option price (c) 5 B D $33 $34 $3 E

Answer rating: 100% (QA)

Solution a Buying a put option gives the right to sell to the buyer ... View the full answer