Question

Q1. Indicate all the options in the table below that are in-the-money, out-of- the-money or at-the-money.

Q2. For all the options in the table below indicate how much of the premium is intrinsic value and how much is time value.

Q3.     Options Expiration: The official expiration date for the options is:

The SAT immediately following the third FRI of the expiration month.

Indicate the official expiration dates of the options in the table.

Q4.     Read the definition of stock splits in the textbook and study

Suppose that MMM had a three-for-one split right now – that is on AUG 19 when the prices in the table are the market prices. Explain in details and show the new numbers the price changes, and the rest of the adjustments. Note: the adjustments are to the nearest cent.

Q5. On August 19 you bought the OCT, K=25, call and at the same time you bought the OCT, K=25 put. You hold both options to their expiration. At the options expiration which one will you exercise and what will be your profit/share or loss/share if MMM’s price at expiration were:

5.1 S = 35; 5.2    S = 20;     5.3     S = 25.

NOTE: Your profit is defined as:

The per share cash flow at expiration PLUS the initial CASH FLOW per share.

Q6. On August 19 you sold the APR 15, K=30, call and at the same time you sold the APR 15 K=30 put. Suppose that both options will not be exercised till their expiration; Calculate your profit/loss per share at expiration if MMML’s price at expiration were:

6.1 S = 35; 6.2    S = 30;      6.3    S = 25.

Q7. On august 19 you bought the APR 15 , K=30 call and simultaneously sold the APR 15 K=32.5 call. The options were not exercised till their expiration.

Calculate your profit/loss per share at expiration if MMML’s price at expiration were $36.50/share.

MMM; TUE August 19 2014. St 27.50 CALLS LAST PUTS LAST Sep14 Oct14Jan15Apr15Sep14Oct14Jan15 Apr15 20 25 27.5 30 32.5 35 37.5 8.50 .35 3.50 3.80 .15 .50 1.35 .55 4.20 1.70 .75 35 .24 2.40 2.75 .45 1.30 5.85 8.10 11.0011.74 8.75 .05 1.00 8.85 9.50 .50 .94 12.50

Answer 1

K

CALL

St=27.50

20

In the money

Because the strike price is below market price.

25

In the money

The Call Option Buyer has right to buy below market Price and make profit by selling at market price

27.5

At the money

Option buyer has right to buy at market price ,there will be no gain or loss

30

Out of the money

Because the strike price is more than market price.

32.5

Out of the money

The Call Option Buyer has right to buy at price higher than the market Price

35

Out of the money

Call Option buyer willmake loss by selling at market price

37.5

Out of the money

K

PUT

St=27.50

20

Out of the money

Because the strike price is less than the market price.

25

Out of the money

The PUT Option Buyer has right to SELL at price Lower than the market Price and willmake loss

27.5

At The money

Option buyer has right to sell at at market price ,there will be no gain or loss

30

In the Money

Because the strike price is more than market price.

32.5

In the Money

The Put Option Buyer has right to SELL at price higher than the market Price

35

In the Money

The Option buyer will make profit by selling at price higher than the market price

37.5

In the Money