I have a couple of questions about this,

1) In part A for call option, if the exercise price stays at 100 but, today's IBM = $96, what would be changed in that question?

2) in part D & E would there ever be a value or (simple pattern) that right away by looking at it I should know not to excerise?

Assume there is a call option on E5M that has a June expiration and an exercise price of $100. Today is April 25. Today IBM's stock price is $96. What is the minimum value of the put option today ? What is a hypothetical price for the put option today? Are there any values the market price of the put cannot be? Why? minimum value: 100-96 = $ 4 Hypothetical market price is something >4, may be 5 Market price will not be le 4 because of arbitrage and leverage On May S assume IBM1 s stock price is SI05. What is the minimum value of the put option on May 8? What is a hypothetical market price for the put option on May 8? Are there any values the market price cannot be? Why? minimum value = 0 hypothetical market price is something > o, may be 75 Market price cannot be le u, it has some value because stock may go back down On June 5 assume IBM's stock price is back to $96. Remembering your answer to part (a) nf this question, what is a hypothetical market price for the put option on June 5? Are there any values the market price cannot be? Why? market price is less than answer to (a) because of lost time, may be 4.65 The price cannot br ge 5 or le 4 (arbitrage and leverage) d. It is now June 19, the third Friday in June. It is 5:00 P.M. and all trading in options has ended for the day. You hold one contract of the IBM put options with a June expiration and S100 exercise price. EBMs closing stock price is $93. You bought this contract 3 months ago for $400 ($4 per option). What will you do on this Friday evening? Why? Ignoring commissions and taxes, how much money will you make or lose on your investment? you will exercise because you are $700 better off doing so Your net profit is $700-$400 = $300 Assume everything in (d) above is the same except you bought the contract for $900 ($9 per option). Now, What will you do on this friday evening? why? ignoring commissions and taxes, how much money will you make or lose on your investment? you will exercise because tou are $700 better off doing so Ypur net profit is $ 700-$900 = -$200 (lose $ 200) If you did not exercise you would lose$900