1. Company ABCs current stock price is $68.75. The company is a small biotech company that has a new drug in the phase III of the FDCs approval process, which is going to make a decision soon. In anticipating a big movement in the companys stock price, you bought 1 straddle contract (1 call contract + 1 put contract) with strike price of $67.50 and expiration in one month. You paid $7.55 for the call and $8.88 for the put.

a. Whats the intrinsic value of the call?

b. Whats the intrinsic value of the put?

c. Whats the time value of the call?

d. Whats the time value of the put?

e. If on expiration date, the stock price drops to $55 due to FDCs decision to reject the drug, whats your P/L?

2. Use the Black- Scholes formula to find the value of a call option on the following stock:

Time to expiration = 6 months;

Standard deviation = 50% per year

Exercise price = $ 50

Stock price = $ 50

Interest rate = 3%

3. Find the value of a put option on the stock in the previous problem with the same exercise price and expiration as the call option.

4. 5 days ago you thought that the crude oil price was going to drop so you went ahead and sold 10 futures contracts with delivery in 5 days (which is today). The original delivery price you sold at was $52.00 per barrel. Below is how the crude oil fluctuated during the 5 days since you sold the contract:

Day0	$52.00
Day1	$51.76
Day2	$51.56
Day3	$52.33
Day4	$51.99
Day5	$52.33

a. Whats your total P/L?

b. Mark your account balance to market at the end of each day, assuming a 15% initial margin requirement.