Part 1

Go to www.nasdaq.com and select IBM in the quote section. Once you have the information quote, request the information on options. You will be able to access the prices for the calls and puts that are closest to the money. For example, if the price of IBM is $196.72, you will use the options with the $195 exercise price. Use near-term options. For example, in February, you would select April and July expirations.

a) What are the prices for the put and call with the nearest expiration date?

b) What would be the cost of a straddle using these options?

c) At expiration, what would be the break-even stock prices for the straddle?

d) What would be the percentage increase or decrease in the stock price required to break even?

e) What are the prices for the put and call with a later expiration date? f) What would be the cost of a straddle using the later expiration date? At expiration, what would be the break-even stock prices for the straddle?

g) What would be the percentage increase or decrease in the stock price required to break even?