Question 4

XYZ Corporation current stock price = $6.00 30 day call 30 day put 5.50 Call = 0.70 5.50 Put = 0.09 6.00 Call = 0.30 6.00 Put = 0.20 6.50 Call = 0.08 6.50 Put = 0.80 (i) Which options are in the money? (2 marks) (ii) Which options are at the money? (2 marks) (iii) Would the premium of a 60 day option be higher or lower than the premium above it were; (a) a call option, (b) a put option

Question 5

You own 15 lots of AAPL Stock currently selling at $4.20. In 30 days you need to pay $60,000 as deposit for shophouse you have arrange to purchase. You think AAPL is likely to rally over the next few weeks, yet you cannot risk losing too much. You want to participate in a potential rally without exposing yourself to too much risk. The following quotes are available: 30 day AAPL 4.25 Call @ 0.25 30 day AAPL 4.25 Put @ 0.15

Suggest a strategy using options that would be appropriate. Assuming that the stock price at option maturity in three month is $3.75, indicate the profit from put option and the combined position value.