Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? Explain your reasoning. (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares?
Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? Explain your reasoning. (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares?
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
Problem 1PS
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Transcribed Image Text:Question 9
In January 2023 Apple shares are priced at $200 a share. You believe that they
are considerably overvalued and are worth only $120 a share. June 2023 put
options on a strike price of $210 a share is currently valued at $18 per share. Each
put contract is based on 100 shares.
(i) What is the intrinsic value of the put option per share? Explain your reasoning.
(ii) What is the time value of the put option per share?
(iii) If we arrive at expiry in June and you are proved correct with Apple shares
selling for $120, what is your total net dollar profit (+) or loss (-) on a single put
option contract in dollars bearing in mind the put option is based on a contract of
100 shares?
(iv) What will be the total cash settlement by the option writer if the Apple share
price expires at $120 per share in June 2023?
(v) 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 June and you are wrong
and Apple shares are selling for $250?
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