Use the option quote information shown here to answer the questions that follow.
ID: 2658737 • Letter: U
Question
Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $73.
a-1. Are the call options in or out of the money?
In
Out
a-2. What is the intrinsic value of an RWJ Corp. call option? (Do not round intermediate calculations.)
Intrinsic value $
b-1. Are the put options in or out of the money?
In
Out
b-2. What is the intrinsic value of an RWJ Corp. put option? (Do not round intermediate calculations.)
Intrinsic value $
c. Two of the options are clearly mispriced. Which ones? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Mar call unchecked
Apr call unchecked
Oct call unchecked
Mar put unchecked
Oct put unchecked
Apr put unchecked
Option and Calls Puts NY Close Expiration Strike Price Vol. Last Vol. Last RWJ Mar 68 243 4.50 173 4.60 Apr 68 183 10.35 140 9.35 Jul 68 152 11.20 56 12.80 Oct 68 73 12.10 24 11.75Explanation / Answer
a-1.
Call options are in the money, i.e, it is beneficial for the call option buyer to buy at the strike price than to let the option expire. The option is in the money because the strike price is less than the current stock price.
a-2.
Intinsic value of the call option is current stock price - strike price, i.e., $73-$68 = $5.
b-1.
Put options are out of the money, i.e., it is better to let the option expire than to exercise it. The put option is out of the money because the current stock price is greater than the strike price.
b-2.
Intrinsic value is strike price-current stock price, or $0 if the option is not excercised. The option is not exercised in this case, therefore, it's intrinsic value is $0.
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