1. [25 points) The following table provided CALL and PUT options for Apple Inc. (AAPL) stock, which ended trading at US$

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1 25 Points The Following Table Provided Call And Put Options For Apple Inc Aapl Stock Which Ended Trading At Us 1 (299.96 KiB) Viewed 50 times

1. [25 points) The following table provided CALL and PUT options for Apple Inc. (AAPL) stock, which ended trading at US$121.03 (-$0.93; -0.76%) on March 12, 2021 (at 4:00PM EST; at close). According to the listing, the options are going to expire on April 16, 2021 (i.e., it expires in 35 days). One option contract is equivalent to 100 shares. CALL Option Price Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility 120 5.59 5.55 5.7 -0.61 -9.84% 14,763 79,844 35.24% 125 3.35 3.35 3.4 -0.44 -11.61% 6,240 72,491 34.35% PUT Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility 34.42% 120 4.55 4.5 4.55 0.4 9.64% 17,619 89,396 56,787 125 7.28 7.2 7.3 0.53 7.85% 580 33.86% Source: AAPL 121.03 -0.93 -0.76%: Apple Inc. - Yahoo Finance; Nasdaq GS Real Time Price a. Suppose you purchased the $125 CALL option contract written by one of your classmates. (Answer the following on a per contract basis.) i. What right does the option give you? At what cost per contract? What is the intrinsic value per contract of this option on March 12? What is the time value per contract of the option on March 12? ii. What will happen if the price of Apple Inc. stock rises to $150 per share before April 16 and you decide to exercise your option? iii. Will you make a profit or a loss on your contract when the stock price is $150? How much? iv. Draw a diagram to show the pattern of profits or losses per share for your call option position. Label the diagram with all necessary information (Payoff, Profit, etc) b. Suppose you purchase Apple Inc.'s stock for $120 and a PUT option for $4.55 per share with a strike price of $120 per share. At the same time, you sell a call for $5.59 with a strike price of $120. (Answer the following questions per share). i. What is the maximum profit or loss for this strategy? ii. Draw the payoff diagram for this strategy as a function of the stock price at expiration. iii. Draw the profit and loss diagram for this strategy as a function of the stock price at expiration. What is the profit (loss) per contract of this strategy if the share price goes down to $100? Suppose that you had purchased the $150 PUT option at $29.25 per share on March 12, 2021 after you had purchased 100 shares of Apple Inc. one month earlier for $120 per share. iv. c. i. Why would you purchase this PUT? What happens if Apple Inc.'s share is trading at $150 per share on April 16 and has fallen below 150? ii. Why would you be happy with what you had done? iii. On the same diagram, draw a graph to show the pattern of profits per share from the long stock position, the long PUT option, and the net position (i.e., protective put).