A buys the following put option:

85 Exxon Mobil May @$5
Exxon Mobil is currently trading for $84 per share.
On the third Friday in May, A still owns the put. What will A's gain or loss on the put be if Exxon Mobil closes at the following prices: 102, 75, 84?

 

3. A and B enter into two contracts with each other at the same time. Neither A nor B owned any shares of IBM at the time they entered 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 contracts, A will immediately sell the shares for their market price at that time. The two contracts are as follows:

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 this right, B must sell A the shares.

Contract 2: B has the right but not the obligation to sell 100 shares 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 this 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 if it is selling at $80 per share? Your answer should include the amounts of money that A and B either made or lost on the transaction. Assume that A paid B $200 to enter into these contracts.

 

4. Rephrase the agreements between A and B in question 3 by using call and put options.

 

5. What event will always occur on July 17 between A and B as long as IBM is not trading at $100 per share? Why?