#2

Refer to the stock options on Apple in the Figure 2.10. Suppose you buy an June expiration call option on 100 shares with the excise price of $135. a-1. If the stock price in June is $151, will you exercise your call?

• Yes

• No

a-2. What is the net profit/loss on your position? (Input the amount as a positive value.)

a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

b-1. Would you exercise the call if you had bought the June call with the exercise price $145?

• Yes

• No

b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)

b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

c-1. What if you had bought an June put with exercise price $135 instead? Would you exercise the put at a stock price of $135?

• Yes

• No

c-2. What is the rate of return on your position? (Negative value should be indicated by a minus sign.)

Strike Call Put FIGURE 2.10 Option prices on Apple (AAPL), April 18, 2017 135 1.17 2.71 Expiration May 12, 2017 May 12, 2017 May 12, 2017 June 16, 2017 June 16, 2017 June 16, 2017 140 145 7.63 3.80 1.61 8.05 135 5.60 2.07 3.90 6.65 140 4.80 2.50 Note: Apple stock price on April 18, 2017 was $141.20. Source: Compiled from data downloaded from Nasdaq, www.nasdaq.com 145