a) A fund manager has been monitoring the performance of Virgin Galactic Corporation shares (NYSE: SPCE). The shares are currently trading at $34.8 on the New York stock exchange. The fund manager predicts that SPEC shares might rise in value over the next few months. He checked the market and found the related information on the options with a maturity of two months as below. Assume the number of underlying shares per contract is 100 shares. (i) Please specify the moneyness of the following options. Are they in the money, at the money or out of the money? Strike $30 $34 5 Call premium Moneyness $3.05 Put premium $2.33 Moneyness $3.9 $4.5

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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a) A fund manager has been monitoring the performance of Virgin Galactic
Corporation shares (NYSE: SPCE). The shares are currently trading at $34.8 on the
New York stock exchange. The fund manager predicts that SPEC shares might rise
in value over the next few months. He checked the market and found the related
information on the options with a maturity of two months as below. Assume the
number of underlying shares per contract is 100 shares.
(i) Please specify the moneyness of the following options. Are they in the
money, at the money or out of the money?
Strike
$30
Call premium Moneyness
$3.05
$3.9
$3.2
Put premium Moneyness
$2.33
$4.5
$7.0
$34.5
$38
(ii)
Which option would you suggest the fund manager to purchase? Why?
(iii) How much would it cost if the fund manager purchases options in ii that
cover 1,000,000 shares (ii)?
Transcribed Image Text:a) A fund manager has been monitoring the performance of Virgin Galactic Corporation shares (NYSE: SPCE). The shares are currently trading at $34.8 on the New York stock exchange. The fund manager predicts that SPEC shares might rise in value over the next few months. He checked the market and found the related information on the options with a maturity of two months as below. Assume the number of underlying shares per contract is 100 shares. (i) Please specify the moneyness of the following options. Are they in the money, at the money or out of the money? Strike $30 Call premium Moneyness $3.05 $3.9 $3.2 Put premium Moneyness $2.33 $4.5 $7.0 $34.5 $38 (ii) Which option would you suggest the fund manager to purchase? Why? (iii) How much would it cost if the fund manager purchases options in ii that cover 1,000,000 shares (ii)?
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