This can be done on www.cboe.com, Yahoo Finance, CNN Money, MarketWatch, or any

ID: 2718264 • Letter: T

Question

This can be done on www.cboe.com, Yahoo Finance, CNN Money, MarketWatch, or any other site where the following can be gathered:

1. Complete the steps below for the following three stocks, one at a time: MSFT (Microsoft), CSCO (Cisco), and IBM (IBM)

2. Put your cursor on "QUOTES & DATA" and click on "Delayed Quotes."

3. then click on "Enter Symbol" and enter the ticker symbol. Write down the "Last" sale price.

4. Then click on "Options Chain" and scroll down and record the "Strike Price" and the "last Trade" value.

5. Is each option either in-the-money or out-of-the-money?

6. Compute the intrinsic value and speculative premium for each option.

MSFT (Microsoft)

Last sale price = $53.69

Strike price of call option = $53

Last trade value of call option = $0.99

Since, the strike price of call option is less than the sale price of the underlying stock; this option is in the money.

Intrinsic value = Sale price of stock – Strike price of call option = $53.69 - $53 = $0.69

Speculative premium = Total premium – Intrinsic value = $0.99 - $0.69 = $0.30

CSCO (Cisco)

Last sale price = $27.24

Strike price of call option = $26.5

Last trade value of call option = $0.84

Since, the strike price of call option is less than the sale price of the underlying stock; this option is in the money.

Intrinsic value = Sale price of stock – Strike price of call option = $27.24 - $26.5 = $0.74

Speculative premium = Total premium – Intrinsic value = $0.84 - $0.74 = $0.10

IBM(IBM)

Last sale price = $138

Strike price of call option = $137

Last trade value of call option = $1.28

Since, the strike price of call option is less than the sale price of the underlying stock; this option is in the money.

Intrinsic value = Sale price of stock – Strike price of call option = $138 - $137 = $1

Speculative premium = Total premium – Intrinsic value = $1.28 - $1 = $0.28

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