EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Textbook Question
Chapter 20, Problem 3P
Below is an option quote on IBM from the CBOE Web site showing options expiring in October and November 2015.
- a. Which option contract had the most trades on that day?
- b. Which option contract is being held the most overall?
- c. Suppose you purchase one option with symbol IBM 1516J150. How much will you need to pay your broker for the option (ignoring commissions)?
- d. Explain why the last sale price is not always between the bid and ask prices.
- e. Suppose you sell one option with symbol IBM1516V 150. How much will you receive for the option (ignoring commissions)?
- f. The calls with which strike prices are currently in-the-money? Which puts are in-the money?
- g. What is the difference between the option with symboiiBM1 516J140 and the option with symbol IBM1506K140?
- h. On what date does the option with symbol IBM1516V140 expire? In what range must IBM’s stock price be at expiration for this option to be valuable?
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Question #1: Option Basics and Option Strategies [28 Points]
Use the following Table to answer Parts (a) - (c)
Current Price of Twitter, Inc. (TWTR) Stock $60.50
Strike Price of a call option that will expire in
March 2022
$62.50
Premium of the call option ($ per share) that
will expire on March 2022
$8.06
(a) Suppose that Tristan purchases four (4) call option contracts on TWTR with an expiration date of
March 2022. Suppose that the stock price of TWTR increases to $73.49. What is the total profit (in
dollars) that Tristan will realize as a result of this option trade? [5 Points]
Here is some price information on FinCorp stock. Suppose that FinCorp trades in a dealer market.Bid =55.25
Ask= 55.50a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed?b. Suppose you have submitted an order to sell at market. At what price will your trade be executed?c. Suppose you have submitted a limit order to sell at $55.62. What will happen?d. Suppose you have submitted a limit order to buy at $55.37. What will happen?
Demonstrate how a margin account operates for both the long and the short futures position using the following information ( you do not need to adjust the values given for contract size or number of contracts)
The initial margin is R30
The initial future price is R100
On day 1 the price drops to R90
On day 2 the price rises to R95.
Fill in the correct monetary values for the margin account values (a) through to (f) in your answer booklet.Take care to show the signs (negative and positive) of your cash flows
Chapter 20 Solutions
EBK CORPORATE FINANCE
Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CCCh. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...
Ch. 20.5 - Is it ever optimal to exercise an American call on...Ch. 20.5 - When might it be optimal to exercise an American...Ch. 20.5 - Prob. 3CCCh. 20.6 - Explain how equity can be viewed as a call option...Ch. 20.6 - Explain how debt can be viewed as an option...Ch. 20 - Explain the meanings of the following financial...Ch. 20 - What is the difference between a European option...Ch. 20 - Below is an option quote on IBM from the CBOE Web...Ch. 20 - Prob. 4PCh. 20 - Prob. 5PCh. 20 - You own a call option on Intuit stock with a...Ch. 20 - Assume that you have shorted the call option in...Ch. 20 - You own a put option on Ford stock with a strike...Ch. 20 - Assume that you have shorted the put option in...Ch. 20 - What position has more downside exposure: a short...Ch. 20 - Consider the October 2015 IBM call and put options...Ch. 20 - You are long both a call and a put on the same...Ch. 20 - You are long two calls on the same share of stock...Ch. 20 - A forward contract is a contract to purchase an...Ch. 20 - You own a share of Costco stock. You are worried...Ch. 20 - Dynamic Energy Systems stock is currently trading...Ch. 20 - You happen to be checking the newspaper and notice...Ch. 20 - In mid-February 2016, European-style options on...Ch. 20 - Suppose Amazon stock is trading for 500 per share,...Ch. 20 - Consider the data for IBM options in Problem 3....Ch. 20 - You are watching the option quotes for your...Ch. 20 - Explain why an American call option on a...Ch. 20 - Consider an American put option on XAL stock with...Ch. 20 - The stock of Harford Inc. is about to pay a 0.30...Ch. 20 - Suppose the SP 500 is at 900, and a one-year...Ch. 20 - Suppose the SP 500 is at 900, and it will pay a...Ch. 20 - Prob. 29PCh. 20 - Suppose that in July 2009, Google were to issue 96...
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