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In September 2023 Dell shares are priced at $180 a share. You believe that they are considerably overvalued and are worth only $80 a share. September 2023 put options on a strike price of $150 a share are currently valued at $4 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in September and you are proved correct with Dell shares selling for $80, what is your net dollar profit on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in September and you are wrong and Dell shares are selling for $200?

In September 2023 Dell shares are priced at $180 a share. You believe that they are considerably overvalued and are worth only $80 a share. September 2023 put options on a strike price of $150 a share are currently valued at $4 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in September and you are proved correct with Dell shares selling for $80, what is your net dollar profit on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in September and you are wrong and Dell shares are selling for $200?

Essentials Of Investments
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
Section: Chapter Questions
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In September 2023 Dell shares are priced at $180 a share. You believe that they are considerably overvalued and are worth only $80 a share. September 2023 put options on a strike price of $150 a share are currently valued at $4 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in September and you are proved correct with Dell shares selling for $80, what is your net dollar profit on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in September and you are wrong and Dell shares are selling for $200?
Transcribed Image Text:In September 2023 Dell shares are priced at $180 a share. You believe that they are considerably overvalued and are worth only $80 a share. September 2023 put options on a strike price of $150 a share are currently valued at $4 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in September and you are proved correct with Dell shares selling for $80, what is your net dollar profit on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in September and you are wrong and Dell shares are selling for $200?
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