You just bought five July 2020 call option contracts selling at $2.50 on Coca Cola stock (KO). The option has a strike price of $45.00 and the stock is selling at $46.50 per share. You are very interested in making money, but you do not wish to purchase any shares of Coke common stock.

1. How much of the $2.50 option price is exercise value and how much is premium?

Exercise Value ______

Time Value Premium ______

2. How much did you pay for your investment in the five option contracts and how many shares of Coke stock do you control (# of KO shares of stock purchased if the option is exercised)?

Total net $ invested in five option contracts _______

# of KO shares of stock that you control _______

3. Assume that it is the last trading day in July before the option is set to expire. The stock price is at $55. Assume the option is selling for its exercise value. What is the option price now and how much have you earned on your investment (total $)? What action should you take?

Option price _______

Total $ earned _______

Your action (circle one): Purchase shares Sell Option Walk Away

4. Now assume that it is the last trading day in July before the option is set to expire, and the stock price is at $35. Assume the option is selling for its exercise value. What is the option price now and how much have you earned on your investment (total $)? What action should you take?

Option price _______

Total $ earned _______

Your action (circle one): Purchase shares Sell Option Walk Away