Refer to Figure 15.1, which lists the prices of various Facebook options. Use th

Question

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 Nov-14 expiration options on a single share, assuming that the stock price on the expiration date is $77. (Leave no cells blank - be certain to enter "0" 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 = 80 Underlying stock Facebook (FB) Expiration Strike 75 80 price = $75.95 Call 3.95 1.65 Put 3.01 5.72 Oct-14 Oct-14 75 80 4.85 2.64 Nov-14 3.97 Nov-14 6.74

Explanation / Answer

Note:

Payoff = Exercise Price - Stock Price on Expiration

Payoff is zero when option remains unexercised

Profit/Loss = Exercise Price - Stock Price on Expiration- Option Premium

Loss is equal to option premium when option remains unexercised

Whether exercised? Payoff Profit/Loss a. Call option, X = 75 Yes 77-75 = 2 =77-75-4.85= -2.85 (loss) b. Put option, X= 75 No 0 -3.97 (loss) c. Call option, X = 80 No 0 -2.64 d. Put option, X = 80 Yes 80-77= 3 =80-77-6.74 = -3.74 (loss)

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