1.42 points Refer to Figure 15.1, which lists the prices of various Facebook opt
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Question
1.42 points Refer to Figure 15.1, which lists the prices of various Facebook options. Use the data in the figure to calculate the payoff and the profit/loss for investments in each of the following Oct-14 expiration options on a single share, assuming that the stock price on the expiration date is $81. (Leave no cells blank- be certain to enter "O" wherever required. Loss amounts should be indicated by a minus sign. Round "Profit/Loss" to 2 decimal places.) Payoff Profit/Loss a-Call option, X= 75 b.Put option, X = 75 c.Call option, X-80 d.Put option, X - 80Explanation / Answer
In call option, option is excecise only when Stock price is higher than strike price and in put option, option is excercise only when strike price is higher than stock price.
Stock price on expiration = $81.
a.
Call OCT-14 at strike price = $75.
Option should be excecised.
Payoff = $81 - $75
= $6.
Payoff is $6.
Profit = $6 - $3.95
= $2.05.
Payoff is $6 and profit is $2.05.
b.
Put OCT-14 at strike price = $75.
Option cannot should be excecised.
Payoff = 0
Payoff is $0.
Loss = Premium paid = $3.01.
Payoff is $0 and loss is $3.01.
c.
Call OCT-14 at strike price = $80.
Option should be excecised.
Payoff = $81 - $80
= $1.
Payoff is $1.
Profit = $1 - $1.65
= -$0.65
Payoff is $1 and profit is -$0.65 or investor incur loss of $0.65.
b.
Put OCT-14 at strike price = $80.
Option cannot should be excecised.
Payoff = 0
Payoff is $0.
Loss = Premium paid = $5.72.
Payoff is $0 and loss is $5.72.
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