Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $40.

a. Suppose you buy 10 contracts of the February 38 call option. How much will you pay, ignoring commissions?

b. In part (a), suppose that Macrosoft stock is selling for $43 per share on the expiration date. How much is your options investment worth? What if the terminal stock price is $39? Explain.

c. Suppose you buy 10 contracts of the August 38 put option. What is your maximum gain? On the expiration date, Macrosoft is selling for $32 per share. How much is your options investment worth? What is your net gain?

d. In part (c), suppose you sell 10 of the August 38 put contracts. What is your net gain or loss if Macrosoft is selling for $34 at expiration? For $41? What is the break-even price—that is, the terminal stock price that results in a zero profit?

Transcribed Image Text:

Calls Puts Strike Option Expiration Price Vol. Last Vol. Last Macrosoft Feb 38 85 2.35 37 .24 Mar 38 61 3.15 22 .93 May 38 22 4.87 11 2.44 Aug 38 6.15 3 3.56 3.