Use the option quote information shown here to answer the questions that follow.

Question

Use the option quote information shown here to answer the questions that follow. The stock selling for $30. Puts Shiko Option and NY Close Expiration Price Macrosoft Last 53 1.05 Vol. 31 31 31 31 43 25 14 6 1.53 1.94 2.36 2.40 64 25 May Aug 1.26 uts ur the August 31 put option ES OF the c-1.What is your maximum gain? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Maximum gain $1 37180 c-2.On the expiration date. Macrosoft is selling for $26 per share. How much is your options investment worth? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g 32.) Position value 6500 o 6500 3.On the expiration date Macrosoft is selling for $26 per share. What is your net gain? (Do not round intermediate calculations and round your answer to the neatest whole number, e-g., 32.) Net gain 3380 uppose you sell 13 of the August 31 put contracts -1. What is your net gain or loss if Macrosoft is selling for $28 at expiration? (A loss amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g.32.) Loss 780 2. What is your net gain or loss if Macrosoft is sellig for $34 at expiration? (A loss amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, o.g. 32.) Gain 3120 . What is the break-even price? (Do not round intermediate calculations and round your amswer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

d. In part (c) suppose you sell 10 of the August 110 put contracts. What is your net gain or loss if Macrosoft is selling for $103 at expiration? For $132? What is the break-even price – that is, the terminal stock price that results in a zero profit?

At a stock price of $103, the put is in the money which means that the put option can be exercised at a profit. As a writer of the put, you will lose: Net loss = $4,700 – 10 x 100 x [$110 - $103] Put premium - Loss on the Put Net Loss = -$2,300 At a stock price of $132, the put is out of the money [i.e., the purchaser of the put can not make any money by putting the stock at $110], so you as the writer will pick up the entire put premium of $4,700. Net Gain = $4,700 At breakeven, you loss on the put would be exactly equal to the put premium. 10 x 100 x [$110 – ST] = $4,700 $105.30 = ST For terminal stock prices above $105.30 the writer makes a profit (ignoring transactions costs and the effects of the time value of money).

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