You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit would be, and what the percentage return would be.

  

Company	Option	Strike	Today's Stock Price	In/Out of the Money?	Premium	Exercise?	Profit	Return
ABC	Call	10	$19.55	In the money	0.86	Yes	-0.6		%
ABC	Put	10	$19.55	Out of the money	0.71	No		0	%
ABC	Call	25	$24.93	Out of the money	0.81	No		0	%
ABC	Put	25	$25.93	In the money	2.01	Yes			%

b. Now suppose that time has passed and the stocks' prices have changed as indicated in the table below. Recalculate your answers to part a.

Company	Option	Strike	Today's Stock Price	In/Out of the Money	Premium	Exercise?	Profit	Return
ABC	Call	10.00	$11.23	In the money	0.86	Yes			%
ABC	Put	10.00	$11.23	Out of the money	0.71	No	0.00	0.00	%
ABC	Call	25.00	$27.00	In the money	0.81	Yes			%
ABC	Put	25.00	$27.00	Out of the money	2.01	No	0.00	0.00	%

2. The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $155 per share, and the price of a 3-month call option at an exercise price of $155 is $5.40. a. If the risk-free interest rate is 8% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $155? (The stock pays no dividends.)

Put-call parity

b. What would be a simple options strategy to exploit your conviction about the stock price's future movements. How far would it have to move in either direction for you to make a profit on your initial investment?

Strategy	Straddle
Price change for profit

3. The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $140 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $140 is $13.06.

a. How can you create the position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?

Position	Immediate CF
Call (long)
Put (short)	13.06
Lending position
Total