Problem 8 21 Seth Harris is an avid investor who likes to speculate on stock price changes Lately he's become bored with the slow movement of most stock prices and thinks options might be more exciting He has been following the stock of Chelsea Club Inc , a women's apparel manufacturer Chelsea's stock price has been stable for more than a year, but Seth is convinced it will increase in the near future but probably not rapidly Amanda Johnson owns 1,200 shares of Chelsea Club purchased a year ago at $37 She thinks the stock's price will continue in the upper $30s indefinitely and may even fall a little Her broker has recommended writing options as a source of income on stagnant stocks Chelsea is selling for $37 5, and six month call options at a $36 5 strike price sell for $4 5 This morning Amanda wrote call options on her 1,200 shares which Seth bought through an options exchange At the time of that transaction (Round your answers to two decimal places, if required ) What was the intrinsic value of an option $ fill in the blank 1 What was the option's time premium $ fill in the blank 2 Was the call in or out of the money in the moneyout of the moneyin the money How much has Amanda invested Assume the investment should be relative to Amanda's purchase price $ fill in the blank 4 What is the most Seth can make or lose Use a minus sign, to indicate loss, if any $ fill in the blank 5 What is the most Amanda can make or lose Use a minus sign, to indicate loss, if any $ fill in the blank 6 It's almost six months later, Chelsea is selling for $44, Amanda's options are about to expire, and Seth exercises Round your answers to two decimal places, if required What is Seth's profit or loss Use a minus sign, to indicate loss, if any $ fill in the blank 7 What is Amanda's profit or loss Use a minus sign, to indicate loss, if any $ fill in the blank 8 Does Amanda incur an opportunity loss YesNoYes If so how much is it Use a minus sign, to indicate loss, if any $ fill in the blank 10 What would Amanda's profit or loss have been if her call had been written naked Use a minus sign, to indicate loss, if any $ fill in the blank 11

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Problem 8-21 Seth Harris is an avid investor who likes to speculate on stock price changes. Lately he's become bored with the slow movement of

Problem 8-21

Seth Harris is an avid investor who likes to speculate on stock price changes. Lately he's become bored with the slow movement of most stock prices and thinks options might be more exciting. He has been following the stock of Chelsea Club Inc., a women's apparel manufacturer. Chelsea's stock price has been stable for more than a year, but Seth is convinced it will increase in the near future but probably not rapidly.

Amanda Johnson owns 1,200 shares of Chelsea Club purchased a year ago at $37. She thinks the stock's price will continue in the upper $30s indefinitely and may even fall a little. Her broker has recommended writing options as a source of income on stagnant stocks.

Chelsea is selling for $37.5, and six month call options at a $36.5 strike price sell for $4.5.

This morning Amanda wrote call options on her 1,200 shares which Seth bought through an options exchange. At the time of that transaction: (Round your answers to two decimal places, if required.)

What was the intrinsic value of an option? $ fill in the blank 1
What was the option's time premium? $ fill in the blank 2
Was the call in or out of the money?
in the moneyout of the moneyin the money
How much has Amanda invested? Assume the investment should be relative to Amanda's purchase price. $ fill in the blank 4
What is the most Seth can make or lose? Use a minus sign, to indicate loss, if any. $ fill in the blank 5
What is the most Amanda can make or lose? Use a minus sign, to indicate loss, if any. $ fill in the blank 6

It's almost six months later, Chelsea is selling for $44, Amanda's options are about to expire, and Seth exercises. Round your answers to two decimal places, if required.

What is Seth's profit or loss? Use a minus sign, to indicate loss, if any. $ fill in the blank 7
What is Amanda's profit or loss? Use a minus sign, to indicate loss, if any. $ fill in the blank 8
Does Amanda incur an "opportunity loss"?
YesNoYes
If so how much is it? Use a minus sign, to indicate loss, if any. $ fill in the blank 10
What would Amanda's profit or loss have been if her call had been written naked? Use a minus sign, to indicate loss, if any. $ fill in the blank 11