Problem 24-2 Understanding Option Quotes [LO1]

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $80.

						Calls						Puts
				Strike
Option	Expiration			Price		Vol.			Last			Vol.			Last
RWJ		Mar		72			250			5.20			180			5.30
		Apr		72			190			11.05			147			10.05
		Jul		72			159			11.90			63			13.85
		Oct		72			80			12.80			31			12.45

a-1.	Are the call options in or out of the money? Correct Answer: In the money

a-2.	What is the intrinsic value of an RWJ Corp. call option? Correct Answer: $8

b-1.	Are the put options in or out of the money? Correct Answer: Out of the money

b-2.	What is the intrinsic value of an RWJ Corp. put option? Correct Answer: 0

c-1.	Two of the options are clearly mispriced. Which ones?
	Mar call (Correct Answer) Apr call Oct call Mar put Oct put (Correct Answer) Apr put

c-2.	What is the arbitrage profit you could make on each of the mispriced options? (Round your answers to 2 decimal places, e.g., 32.16.)

Mispriced option	Profit
Mar call
Oct put