Three six-month call options are traded on Hogswill stock:

Exercise Price Call Option Price

$ 90 $ 5 100 11 110 15 How would you make money by trading in Hogswill options? ( Hint: Draw a graph with the option price on the vertical axis and the ratio of stock price to exercise price on the horizontal axis. Plot the three Hogswill options on your graph. Does this fit with what you know about how option prices should vary with the ratio of stock price to exercise price?)

Now look in the newspaper at options with the same maturity but different exercise prices.

Can you find any money-making opportunities?AppendixLO1

Transcribed Image Text:

(a) (b) (c) (d) FIGURE 20.14 Some complicated position diagrams. See Problem 29.