Use the following option quotes to answer questions #24 through #29. Call Put Op
ID: 2650176 • Letter: U
Question
Use the following option quotes to answer questions #24 through #29.
Call Put
Option Strike Exp. Vol. Last Vol. Last
Cisco 15.00 Oct. 491 2.26 559 0.25
16.30 15.00 Nov. 259 2.90 154 1.00
16.30 17.50 Oct. 680 0.85 522 1.60
16.30 17.50 Nov. 142 1.33 40 2.31
16.30 17.50 Feb. 51 1.95 28 3.77
16.30 20.00 Oct. 828 0.30 915 4.05
16.30 20.00 Nov. 123 0.55 212 4.67
24. What is the cost to purchase one October 17.50 call contract on Cisco stock?
a. $290
b. $175
c. $ 85
d. $163
e. $680
25 What is the time value per share of the November 15 call?
a. $1.30
b. $1.40
c. $1.60
d. $1.90
$2.90
26. What is the time value per share of the November 15 put?
a. $0.00
b. $0.25
c. $1.00
d. $1.25
e. $1.30
27. Which of the options shown in the quote are in-the-money?
I. The October 15 call
II. The November 17.50 call
III. The October 15 put
IV. The November 20 put
a. I and II only
b. II and III only
c. I and IV only
d. III only
e. III and IV only
28. Suppose you bought 20 Cisco Oct 15 call contracts. Just before the option expires, the stock is selling for $18. What is your net profit (or loss)? Ignore transaction costs.
a.
Explanation / Answer
Since, the question has multiple parts, the first four questions have been answered.
______________
Part 1)
The cost to purchase 1 contract of call-option would be calculated with the use of option value for 17.50 november call. The size of call option is 10. The formula for calculating cost of 1 contract would be:
Cost of Contract = Last Value*10
__________
Here, Option Value = 16.30
Using this value in the above formula, we get,
Cost of Contract = 16.30*10 = $163 (which is Option D)
________________
Part B)
The time value time value per share of the November 15 call is equal to the last value of the call as indicated by Column - Last (for call), Row-2 for November 15). Here, the time value per share is $2.90 (which is Option E)
________________
Part C)
The time value time value per share of the November 15 put is equal to the last value of the put as indicated by Column - Last (for put), Row-2 for November 15). Here, the time value per share is $1.00 (which is Option C)
________________
Part D)
I and IV only (which is Option C)
______
Details Provided Below:
A call option is in the money, if the strike price of the call is less than the current stock price. On the other hand, a put option is in the money, if the strike price of the put is more than the current stock price.
Here, the last value (current value) of the stock for call option is 2.26 or 22.60 (2.26*10) which is greater than the strike price of $15 and the last value for put option is .25 or 2.5 (.25*10) which is less than the strike price.
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