Question
1. You purchase seven call contracts on American Airline stock with exercise price of 25 that expires in July for a premium of $1.60. You
1. You purchase seven call contracts on American Airline stock with exercise price of 25 that expires in July for a premium of $1.60. You hold the option until the expiration date, when the stock sells for $27.4 per share. Calculate the profit on your investment.
2. A stock with a current market price of $80 has an associated call option priced at $12.70. The option strike price is $70 and it expires in 7 weeks. This call has an intrinsic value of __________ and a time value of ___________
3. A put option with several months until expiration has a strike price of $100 when the stock price is $95. The option has __________ intrinsic value and __________ time value. (Choose your answers from negative, zero and positive)
4. What is the difference between American and European options? Which one is more valuable?
5. What is the maximum profit and loss for each of the following strategies?
(a) Buying a call option
b) Writing a call option
c) Writing a put option
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