Options

Homework

1. Graph a call option. Make sure you put the price of the stock on the x axis and the change in wealth on the y axis. There is no such thing as a negative stock price so the y axis does not split the x axis into positive and negative. Here are the variables to use: Stock price is currently at $13; stock strike price is $18; the premium is $20. Make sure you label the change in wealth for the buyer and writer (seller), the out-of-the-money area, in-the-money area and the breakeven point.

2. Graph a put option. Make sure you put the price of the stock on the x axis and the change in wealth on the y axis. There is no such thing as a negative stock price so the y axis does not split the x axis into positive and negative. Here are the variables to use: Stock price is currently at $42; stock strike price is $36; the premium is $.55. Make sure you label the change in wealth for the buyer and writer (seller), the out-of-the-money area, in-the-money area and the breakeven point.

3. A call option has the following variables: The current stock price is $69; the strike price is $63; the call premium is $.70. Would the buyer exercise the call? If so, what is the profit or loss for the call buyer? What is the profit or loss for the writer of the call?

4. A call option has the following variables: The current stock price is $93; the strike price is $98; the call premium is $.70. Would the buyer exercise the option? If so what is the profit or loss for the call buyer? What is the profit or loss for the writer of the call?

5. A put option has the following variables: The current stock price is $47; the strike price is $46.50; the put premium is $.6 Would the buyer exercise the option? If so, what is the profit or loss for the put buyer? What is the profit or loss for the writer of the put?

6. A put option has the following variables: The current stock price is $19; the strike price is $22; the put premium is $.50. Would the buyer exercise the option? If so what is the profit or loss for the put buyer. What is the profit or loss for the writer of the put?