Consider the following information on options from the CBOE for Rackspace. RAX 3
ID: 1172206 • Letter: C
Question
Consider the following information on options from the CBOE for Rackspace.
RAX 30.09 +0.48
12/3/10 Bid 30.07 Ask 30.09
Calls
Last Sale
Net
Bid
Ask
Vol
Open Int
RAX 10 Dec 29
1.25
0
1.5
1.7
0
1436
RAX 10 Dec 30
1.05
0.27
0.95
1.1
5
2245
RAX 10 Dec 31
0.6
0.15
0.55
0.7
13
485
RAX 10 Dec 32
0.45
0
0.3
0.4
0
74
RAX 11 Jan 29
1.7
0
2.25
2.5
0
872
RAX 11 Jan 30
1.87
0.02
1.75
2
30
523
RAX 11 Jan 31
1.41
0.06
1.3
1.5
3
85
RAX 11 Jan 32
1.2
0
0.95
1.1
0
117
Puts
Last Sale
Net
Bid
Ask
Vol
Open Int
RAX 10 Dec 29
0.6
minus?0.2
0.5
0.7
1
750
RAX 10 Dec 30
1.19
0
0.95
1.1
0
521
RAX 10 Dec 31
2.05
0
1.55
1.7
0
31
RAX 10 Dec 32
0
0
2.15
2.5
0
0
RAX 11 Jan 29
1.85
0
1.45
1.7
0
1205
RAX 11 Jan 30
0
0
1.95
2.2
0
150
RAX 11 Jan 31
0
0
2.55
2.7
0
100
RAX 11 Jan 32
0
0
3.1
3.4
0
0
Assume you want to sell 20 call option contracts with an exercise price closest to being at?the?money and that expires January 2011. The current price that you would receive for such a contract? is:
A. ?$4000
B. ?$2600
C.?$3900
D.?$3500
E.?$4500
Calls
Last Sale
Net
Bid
Ask
Vol
Open Int
RAX 10 Dec 29
1.25
0
1.5
1.7
0
1436
RAX 10 Dec 30
1.05
0.27
0.95
1.1
5
2245
RAX 10 Dec 31
0.6
0.15
0.55
0.7
13
485
RAX 10 Dec 32
0.45
0
0.3
0.4
0
74
RAX 11 Jan 29
1.7
0
2.25
2.5
0
872
RAX 11 Jan 30
1.87
0.02
1.75
2
30
523
RAX 11 Jan 31
1.41
0.06
1.3
1.5
3
85
RAX 11 Jan 32
1.2
0
0.95
1.1
0
117
Explanation / Answer
Since the stock trades at $30.09, the At the Money strike price is $31 for the stock. Looking at the table, we find that bid price for $31 call expiring in January, 2011 is $1.3. The bid price is the price at the which the investor may sell their call. The proceeds would be $2600 ($1.3 x 20 x 100). The answer is B.
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