Question

This is an Excel homework on options.

Very important:

You must label your x-axis and y-axis.

You must provide info on the graph, which means what the graph shows, title of the graph.

If there are more than one line on the table, you must separate them either with color or solid versus broken line, as in my lecture notes.

Appendix-2:

Some Problems to Work on Option

NOTE: For each problem on options on stocks, one option contract is equal to 100 shares of underlying stock, e.g. 1 option = 100 share.

For example, if one buys and sell 3 option contract, this amounts to 3x100=300 of shares.

This feature of options on stocks also applies to the premium of options.

For example, if one buys 5 option contract on IBM stocks @ $6.75 for each option, then it means that long position pays total of $3,375 (= $6.75 x 100 x 5)

Problem-02a: You sell (short position) 5 European put option contracts on ABC stock at the premium of S5.25. The exercise price of the option is $60 the maturity of the options is 1-month, and stock is currently trading at $58 i. What is the payoff of your position if the stock is at S57.50 at maturity? Show the results numerically ii. Repeat i. for the stock price at maturity of S64. Problem-02b: For problem-02a: i. What is the profit (P/L) of your position if the stock is at $57.50 and at S64? Show the results numerically ii. What is the Break Even Point (BEP) of your investment? (It is easier to find the BEP on one option, rather than for the entire value of the investment!) For the following Excel exercise, you should use one option to one underlying in calculating and graphing, rather than using entire value of the investment.] Problem-02c (Excel Exercise): For problems-02a and -02b, assume that XYZ stock price at maturity will take values between $40 and S80 in increment of $5 i. Will the put (option) buyer exercise the option? Give only NO, INDIFFERENT, YES answer. This is a qualitative question? ii. At each likely underlying price at maturity, calculate and show the Payoff and P/L numbers using formulas (in Excel!). Note that stock price of ABC ranges from $40 to 80 in increments of S5. iii. Graph your numbers found in ii. iv. Integrate numbers calculated in Problem-02a i, ii, and Problem-02b i, ii. (This means put these numbers into the graph)