14 Understanding Option Quotes Use the option quote information from Euronext Liffe shown here for Xstrata plc to answer the questions that follow. The equity is selling for £11.025.

Calls Puts Settl. O.I.

Day Vol. Last Bid Ask Strike Bid Ask Last Day Vol. O.I. Settl.

463.00 − − − 431.50 490.00 C 6.40 P - 5.50 − − 62 0.50 423.00 558 − − 391.50 450.00 C 6.80 P - 6.00 − − 781 0.50 383.00 35 − − 352.50 410.00 C 7.20 P - 6.50 − − 1,276 1.00 343.00 27 − − 312.50 370.00 C 7.60 P - 5.50 − − 47 2.50 303.00 419 − − 272.00 330.50 C 8.00 P 0.50 7.00 − − 641 3.50 263.50 88 − − 233.50 291.50 C 8.40 P 2.50 8.50 − − 135 5.50 225.50 583 − − 208.00 238.00 C 8.80 P 7.00 12.50 − − 944 9.50 188.50 16 − − 171.00 201.00 C 9.20 P 12.50 17.50 − − 1,339 14.50 153.50 149 − − 144.00 159.00 C 9.60 P 20.00 22.50 − − 1,017 21.00 122.00 2,620 − − 112.00 127.00 C 10.00 P 30.00 33.50 − − 1,830 31.00 80.50 154 − − 76.00 82.00 C 10.60 P 50.50 55.00 49.00 15 1,095 51.00 58.50 699 − − 55.00 60.00 C 11.00 P 69.00 74.50 66.00 15 4,477 69.50 38.00 4,742 20 43.50 34.50 39.00 C 11.50 P 97.50 104.00 − − 1,729 99.00 22.50 3,537 47 21.00 20.00 23.50 C 12.00 P 130.00 142.50 127.00 3 3,038 134.00 8.00 2,456 − − 5.50 9.50 C 13.00 P 205.00 235.00 205.00 5 973 219.00 1.50 1,679 − − - 5.00 C 14.00 P 285.50 345.00 − − 454 313.00 0.00 140 − − - 3.50 C 15.00 P 384.00 443.00 − − 8 412.00 0.00 116 − − - 5.00 C 16.00 P 484.00 543.50 − − 22 512.00

(a) Are the call options in the money? What is the intrinsic value of an Xstrata plc call option?

(b) Are the put options in the money? What is the intrinsic value of an Xstrata plc put option?

(c) Looking at the quotes on their own, do you think that the market expects the price of Xstrata to increase or decrease during the period of the option? What range of prices are anticipated? Look at the share price history for Xstrata on Yahoo! Finance and find out what actually happened. Who made a profit from their trading – the call or put holders?