Question
A and B enter into 2 contracts with each other at the same time. Neither A nor B own any shares of IBM at the
A and B enter into 2 contracts with each other at the same time. Neither A nor B own any shares of IBM at the time they enter into the contracts. If at any time under the contracts B sells shares of IBM to A, B will acquire the shares in the marketplace and pay the market price at that time. If A acquires shares from B under the contract A will immediately sell the shares for their market price at that time. The 2 contracts are the following: Contract 1 - A has the right but not the obligation to buy 100 shares of IBM from B for $100 per share at any time between the date the contract was entered into and July 17, 2020. If A exercises her right B must sell A the shares. Contract 2 - B has the right but not the obligation to sell 100 sheds of IBM to A for $100 per share at any time between the date the contract is entered into and July 17, 2020. If B exercises his right, A must buy the shares. Assume that both A and B wait until July 17, before they take any action under either contract. What happens to A and B if IBM is selling for $115 per share on July 17, 2020? What happens at $80 per share? Your answer should include the amount of money that A and B either made or lost on the transaction. Assume that A paid B $200 to enter into these contracts.
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