Refer to Figure 15.1, which lists the prices of various Microsoft options. Use the data in the figure to calculate the payoff and the profit/loss for investments in each of the following November 2019 expiration options on a single share, assuming that the stock price on the expiration date is $143. (Loss amounts should be indicated by a minus sign. Round "Profit/Loss" to 2 decimal places.) ### Microsoft (MSFT) Options Data**Underlying stock price = $139.69**#### Options Table| Expiration | Strike | Call | Put ||---------------------|--------|------|-----|| November 15, 2019 | 135 | 6.78 | 1.89 || November 15, 2019 | 140 | 3.60 | 3.70 || November 15, 2019 | 145 | 1.50 | 6.65 || December 20, 2019 | 135 | 7.93 | 3.28 || December 20, 2019 | 140 | 4.85 | 5.30 || December 20, 2019 | 145 | 2.71 | 8.10 |#### Explanation of the Table:1. **Expiration Date**: This represents the date on which the options contract expires.2. **Strike Price**: This is the price at which the option holder can buy (for call options) or sell (for put options) the underlying stock.3. **Call Price**: This is the premium paid to buy a call option, which gives the holder the right, but not the obligation, to purchase the stock at the strike price before or at expiration.4. **Put Price**: This is the premium paid to buy a put option, which gives the holder the right, but not the obligation, to sell the stock at the strike price before or at expiration.In this table, the prices of call and put options for different strike prices and expiration dates are listed. The underlying stock price for Microsoft (MSFT) is $139.69 as of the data provided. This table helps investors understand the cost of options based on their expiration date and strike price, allowing them to make informed decisions on their trading strategies. For example, a call option expiring on November 15, 2019, with a strike price of $135 costs $6.78, whereas a put option with the same strike price and expiration date costs $1.89. This table shows that as the strike price increases, the price of call options generally decreases, and the price of put options generally increases.Understanding these values is crucial for traders looking to hedge their positions or speculate on the future price movements of Microsoft's **Understanding Options Payoff and Profit/Loss**We are given information about various options available concerning a particular stock, and we need to determine their payoff and profit/loss on the expiration date. The stock price on the expiration date is $143.Here is a summarized table based on the options:| Option Type and Strike Price | Payoff | Profit/Loss || --------------------------------- | --------------- | ----------- || a. Call option, X = 140 | | || b. Put option, X = 140 | | || c. Call option, X = 145 | | || d. Put option, X = 145 | | |To interpret this table:- **Call Option**: This gives the holder the right to buy the stock at the strike price (X).- **Put Option**: This gives the holder the right to sell the stock at the strike price (X).For each option:1. **Call option, X = 140**: - Payoff = Max(0, Stock Price - Strike Price) = Max(0, $143 - $140) = $3 - Profit/Loss = Payoff - Cost of the Option (Assume the premium is needed to calculate the exact profit/loss). 2. **Put option, X = 140**: - Payoff = Max(0, Strike Price - Stock Price) = Max(0, $140 - $143) = $0 - Profit/Loss = Payoff - Cost of the Option (Assume the premium is needed to calculate the exact profit/loss).3. **Call option, X = 145**: - Payoff = Max(0, Stock Price - Strike Price) = Max(0, $143 - $145) = $0 - Profit/Loss = Payoff - Cost of the Option (Assume the premium is needed to calculate the exact profit/loss).4. **Put option, X = 145**: - Payoff = Max(0, Strike Price - Stock Price) = Max(0, $145 - $143) = $2 - Profit/Loss = Payoff - Cost of the Option (Assume the premium is needed to calculate the exact profit/loss).From these calculations, you can fill in the table if you

Options are derivative products they derive value from underlying assets and these give opportunity…

Answered: a. Call option, X = 140 b. Put option,…

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

Section: Chapter Questions

Problem 1PS