Consider the following positions on the Intel stock. For each of the positions c
ID: 2788380 • Letter: C
Question
Consider the following positions on the Intel stock. For each of the positions choose the strike X = $45. Choose January option.
1. Long 1 call contract.
Assume that you enter and close the positions at the mid point of bid-ask spread.
Assume that you trade each contract on Nov 1 (i.e. enter the positions).
A. Close out your positions on Nov 8. Calculate your net dollar gain or loss.
B. Now assume that you exercise options on Nov 8. For each position compute your net gain or loss.
C. For each position draw the payoff diagram, marking the strikes and the stock price on Nov 8 clearly, as well as your gain or loss.
November 1 INTC (INTEL CORP) 45.785 +0.295 Maturity Calls e Bid Ask Vol Open Int Puts Net Bid Ask VolOpen trike Sale Int TC1715143-E 2.97 +0.13 2.95 3.00 2 349717 Dec 43.00 INTC1715X43-E 0.39 -0.05 0.38 0.73 20 2137 TC1715L44E 1.98 0.0 2.19 2.23 0 1206117 Dec 44.00 INTC1715X44-E 0.60 0.14 0.53 0.62 20 2740 NTCITISLASE 1.57 10.19 154 1.58 223 15703 17 De 4500 INTCISS-E 0 0.14 09700 1 2086 .07 +0.10 1.03 1.07 32 6939 17 Dec 46.00 INTC1715X46-E 1.41 -0.29 1.45 1.49 21 819 TC1715146-E 148 143 35 1503 TCHE 0 7137 TC1819A43-E INTC1819A44-E 2.44 0.0 2.62 2.68 0 5860 18 Jan 44.00 INTC1819M44-E 0.94 0.17 0.96 1.00 10 2365 NTC1819A45-E 2.07 +0.19 2.00 2.05 3 32063 18 Jan 45.00 INTC1819M45-E 1.47 0.0 1.36 1.40 0 4589 1.43 0.0 1.48 1.58 0 1753 18 Jan 46.00 INTC1819M46-E 1.92 -0.11 1.84 1.89 5 860 TC1819A46-EExplanation / Answer
Solution:
1 (A)
Strike Price of the January Call Option : $45
Price paid for buying 1 Call Option at Strike price $45 on Nov 1: Average ($2,$2,05) = $2.025 (avg of bid ask spread)
Price of Selling 1 Call option at Strike price $45 on Nov 8 : Average ($2.59,$2.75) = $2.67
Net Gain = ($2.67-$2.025)*100 = $64.5
Similarly,
Price paid for buying 1 Put Option at Strike price $45 on Nov 1: Average ($1.36,$1.40) = $ 1.38(avg of bid ask spread)
Price of Selling 1 Put option at Strike price $45 on Nov 8 : Average ($1.0,$1.05) = $1.025
Net Loss = ($1.025-$1.38)*100 = $35.5
(B)
If the Call option for Jan with Strike Price of $45 bought on Nov1 is exercised on Nov 8, then the gain per share
= $46.48 (Stock Price on Nov 8) - $45 (Strike price of call option) = $1.48
Call option price = $2.025
Net loss per share = $1.48-$2.025 = $0.545; Total Loss = $54.5
If the Put option for Jan with Strike Price of $45 is bought on Nov1, it will be out of money
The loss per share = price of put option = $1.38 ; Total loss = $138
(C)
Payoff diagrams for the call option shall be a straight line with coordinates (0,-2,025) linking to (45,-2.025) and then a upward sloping line (-0.545, 46.48) and crossing x-axis at (47.025,0)and then extending along the same slope upwards.
Y axis represents payoff and X -axis : stock price
Payoff diagrams for the put option shall be a downward sloping line with coordinates (0,43.62) and crossing x-axis at (0,43.62) and then extending further till the point (45,-1.38). It will then continue as a stright line parallel to x-axis
Y axis represents payoff and X -axis : stock price