2. Go to yahoo finance or other similar sites to find stock options quotes on yo
ID: 2752971 • Letter: 2
Question
2. Go to yahoo finance or other similar sites to find stock options quotes on your stock on December 4th for the month of December and January. Select the options with strike price at, above, and below the stock price. Make sure you make a note of whether the stock pays dividends. Fill in the table below and answer the questions:
Southwest Airlines -Call-Put Option
Call Premium
Put Premium
Stock Price
Strike Price
December
January
December
January
44.5
21
16.8
44.5
43.5
0.30
From the call options above, identify those that are "in the money" and those that are "out of the money."
Explain why the December and January call options that are out of the money still have value? Explain why the December and January put options that are out of the money still have values? Estimate the variance of your stock using five years returns. What is the value of the call and put option premium for all three strike prices assuming the risk free rate is 3% and the option expire on Thursday December 24 and Friday January 22, 2016. Explain what happens to delta of both options at different strike prices. Assume you have purchased 1 million shares of your stock. Show an optimal strategy to hedge against price decline.
Call Premium
Put Premium
Stock Price
Strike Price
December
January
December
January
44.5
21
16.8
44.5
43.5
0.30
Explanation / Answer
Southwest Airlines -Call-Put Option
Call Premium
Put Premium
Stock Price
Strike Price
December
January
December
January
44.5
21
16.8
17.2
0.1
0
44.5
43.5
2.85
2.8
0.33
0.30
From the call options above, identify those that are "in the money" and those that are "out of the money."
Answer:
In the money call option: December call with strike price of $21 and January call with strike price of 21.
Out of the money call = December and January calls with strike price of $43.5.
Explain why the December and January call options that are out of the money still have value?
Answer:
Because an out of the money option has no intrinsic value, but only possesses extrinsic or time value.
Explain why the December and January put options that are out of the money still have values?
Answer:
Because an out of the money option has no intrinsic value, but only possesses extrinsic or time value.
Call Premium
Put Premium
Stock Price
Strike Price
December
January
December
January
44.5
21
16.8
17.2
0.1
0
44.5
43.5
2.85
2.8
0.33
0.30
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