Use the following options quotations to answer Questions 4 through 7: 4. Option

Question

Use the following options quotations to answer Questions 4 through 7:

4. Option Quotes (LO1) Suppose you buy 50 April 100 call option contracts. How much will you pay, ignoring commissions?

5. Calculating Option Payoffs (LO2, CFA3) In Problem 4, suppose that Hendreeks stock is selling for $105.70 per share on the expiration date. How much is your options investment worth? What if the stock price is $101.60 on the expiration date?

Puts Calls Strike Price Vol Last Vol Last Expiration Close Hendreeks 103 103 103 103 5.20 8.40 10.68 14.30 50 29 10 2 2.40 4.90 6.60 10.10 72 100 100 100 100 Feb Mar Apr Jul 16 8

Explanation / Answer

4.) Let Contract Size =100

Cost of one Call Option Contract for Strike $100 and Apr expiry =$10.68

Cost of 50 Call Option Contract for Strike $100 and Apr expiry =$50 x 10.68 x 100=$53,400

5.) Stock Price at Expiry =$105.70

Worth of Options at Expiry =$50x(105.70-100)x100 =$50x5.70x100 =$28,500

Net Options Payoff =$28,500 - 53,400 =$-24,900

Stock Price at Expiry =$101.60

Worth of Options at Expiry =$50x(101.60-100)x100 =$50x1.60x100 =$8,000

Net Options Payoff =$8,000 - 53,400 =$-45,400

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