OPTIONS - PROBLEMS TO BUILD CONCEPT UNDERSTANDING 1. Option Function: a. What happens if a long call is exercised? Explain. b. What happens if a long put is exercised? Explain. c. What happens if a short call is exercised? Explain. d. What happens if a short put is exercised? Explain 2. Intrinsic and Extrinsic Value: Look at the following table and compute intrinsic and extrinsic values: UNDERLYING PRICE OPON PRICE Acadis Pharma ACAD) $26.80 18 Apr 2018 23 call $1.29 Net Inc. (NL) $20.31 17 May 2019 38 515.25 Proce Gamblea $28.975 Apr 2019 95 call PG) IBM IBM 5138.125 Apr 2019 13729 Pure Storage Inc. (TG) $20.5017 May 2019 22.5 call 51.68 Scaler, Inc (2) S25820 Dec 2019 Scall $9. Scaler, Inc (2) S496820 Dec 2019 50 et 59.0 3.1 Delta: a. An option is trading at $3.45. If it has a delta of 78, what would the price of the option be if the underlying increases by 5.757 What would the price of the option be if the underlying decreases by 5.55? b. What type of option is this? Explain your answer. c. With a delta of 78, is this option ITM, ATM or OTM? Explain your answer 3.2 Delta: a. An option is trading at $5.03. If it has a delta of - 56. what would the price of the option be if the underlying increases by S.75? What would the price of the option be if the underlying decreases by 5.55? b. What type of option is this? Explain your answer. c. With a delta of - 56, is this option ITM, ATM or OTM? Explain your answer. 3.3 Delta: Look at the following chart. Rank the options in terms of moneyness, from deepest ITM to deepest OTM A Call 39 3 Call 12 Cel 75 D Call 16 Call 35 Ful 50 4. Extrinsic Value: Look at the following chart. Rank the options in order of expiry, from nearest to farthest. ENERO UNDERLYIN STRIKE OPTIONS G TYPE PRICE PRICE SPY 527863 280 call $11.70 SPY 5278.68 236 call 1469 SPY $278.68 230 put $1239 SPY 5275.65 280 call S2744 SPY $278.68 230 pul 8.73 SPY SPY 527864 all C D F o