Calculate the payoff and the profits for investments in each of the following Ju

Question

Calculate the payoff and the profits for investments in each of the following July maturity options, assuming that the stock price on the expiration date is $510. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round "Profit" to 2 decimal places.)

Calculate the payoff and the profits for investments in each of the following July maturity options, assuming that the stock price on the expiration date is $470. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round "Profit" to 2 decimal places.)

The following table lists prices of Apple options in April 2013 when Apple stock was selling for $490.

Explanation / Answer

(a)

(a)

     Payoff Call Option Payoff = (Underlying Price - Excercise Price)     Profit Underlying Price Excercise Price Put Option Payoff = (Excercise Price - Underlying Price) Action (Excersising option or not) Option price Payoff - Option Price i. Call option with exercise price of $460 $     510.00 $      460.00 $                    (50.00) Positive Payoff so option shall be excercised $44.56 $         5.44 ii. Put option with exercise price of $460 $     510.00 $      460.00 $                   (50.00) (Negative payoff so option not to be excercised) $44.57 $             -   iii. Call option with exercise price of $490 $     510.00 $            490.00 $                    (20.00) Positive Payoff so option shall be excercised $26.45 $      (5.55) iv. Put option with exercise price of $490 $     510.00 $            490.00 $                    (20.00) (Negative payoff so option not to be excercised) $26.45 $             -   v. Call option with exercise price of $520 $     510.00 $            520.00 $                       10.00 (Negative payoff so option not to be excercised) $14.90 $             -   vi. Put option with exercise price of $520 $    510.00 $           520.00 $                        10.00 Positive Payoff so option shall be excercised $14.90 $      (4.90) (b)      Payoff Call Option Payoff = (Underlying Price - Excercise Price)     Profit Underlying Price Excercise Price Put Option Payoff = (Excercise Price - Underlying Price) Action (Excersising option or not) Option price Payoff - Option Price i. Call option with exercise price of $460 $     470.00 $      460.00 $                            10.00 Positive Payoff so option shall be excercised $44.56 $    (33.44) ii. Put option with exercise price of $460 $     470.00 $      460.00 $                          (10.00) (Negative payoff so option not to be excercised) $44.57 $             -   iii. Call option with exercise price of $490 $     470.00 $            490.00 $                          (20.00) (Negative payoff so option not to be excercised) $26.45 $             -   iv. Put option with exercise price of $490 $     470.00 $            490.00 $                            20.00 Positive Payoff so option shall be excercised $26.45 $      (5.55) v. Call option with exercise price of $520 $     470.00 $            520.00 $                          (50.00) (Negative payoff so option not to be excercised) $14.90 $             -   vi. Put option with exercise price of $520 $     470.00 $           520.00 $                            50.00 Positive Payoff so option shall be excercised $14.90 $      35.10

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