Problems to work through 1. Use the table on Microsoft options to calculate the payoff value and profits for each of the following June 2017 contracts. Assume the spot price is $71. a) Call option, X=70 A Microsoft (MSFT) price = $71.75 Underlying stock b) Put option, X=70 Expiration Strike Call Put June 16, 2017 70 2.02 0.24 c) Call option, X=72 d) Put option, X=72 e) Call option, X=74 f) Put option, X=74 June 16, 2017 72 0.67 0.90 June 16, 2017 74 0.13 2.37 July 7, 2017 70 2.40 0.58 July 7, 2017 72 1.15 1.32 July 7, 2017 74 0.42 2.59 2. You purchase one Microsoft July $80 put contract for a premium of $5.72. What is your maximum possible profit? 3. An investor buys a call at a price of $4.50 with an exercise price of $40. At what stock price will the investor break even on the purchase of the call? 2) Problems to work through 1. You purchase one AAPL July 125 call contract (equaling 100 shares) for a premium of $5. You hold the option until the expiration date, when AAPL stock sells for $123 per share. What profit or loss do you realize on the investment? 2. You write one AAPL July 120 put contract (100 shares) for a premium of $4. You hold the option until the expiration date, when AAPL sells for $118 per share. What profit or loss do you realize on the investment? 3. 4. 5. Why is the holder of an option not required to post margin under the Option Clearing Corporation rules? An investor purchases a long call at a price of $2.50. The strike price at expiration is $35. If the current stock price is $35.10, what is the break-even point for the investor? Draw the value and profit function the writer of a 200 AAPL call selling for 8.50 would face if Apple is selling at $225 at expiration. Note the profit or loss of the option.