Consider the IBM call and put options in Problem 3. Ignoring any interest you might earn over the remaining few days’ life of the options:

a. Compute the break-even IBM stock price for each option (i.e., the stock price at which your total profit from buying and then exercising the option would be zero).

b. Which call option is most likely to have a return of −100%?

c. If IBM’s stock price is $131 on the expiration day, which option will have the highest return?

Appendix