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MGMT S-2000 Problem Set 5 Summer 2014

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Question;1. (30 pts)Say that on a recent day, Wal Mart stock closed at $55.19 per share, down $.05 on the day.Consider the following chart giving the premium as of close of trading on that day, on various options on Wal Mart stock: WMT (WAL MART STORES INC)55.19 -0.05CallsLastSale14 Aug 42.50 (WMT LV-E)12.300.0 12.65 13.0500.020.00.0 0.020319414 Aug 45.00 (WMT LI-E)10.150.0 10.15 10.600224 14 Aug 45.00 (WMT XI-E)0.020.00.0 0.02451414114 Aug 47.50 (WMT LW-E)7.560.0 7.70 8.100611 14 Aug 47.50 (WMT XW-E)0.01 -0.030.0 0.03421600714 Aug 50.00 (WMT LJ-E)5.800.0 5.25 5.35 290 5611 14 Aug 50.00 (WMT XJ-E)0.02 -0.02 0.02 0.03 1126672614 Aug 52.50 (WMT LX-E)3.33 -0.02 2.83 2.89 182 15093 14 Aug 52.50 (WMT XX-E)0.08 -0.07 0.08 0.11 3862015414 Aug 55.00 (WMT LK-E)0.92 -0.32 0.85 0.89 1672 34325 14 Aug 55.00 (WMT XK-E)0.59 -0.01 0.58 0.62 26632782314 Aug 57.50 (WMT LY-E)0.20 -0.08 0.12 0.14 2220 20681 14 Aug 57.50 (WMT XY-E)1.85 -0.41 2.33 2.38 3651045114 Aug 60.00 (WMT LL-E)0.03 -0.01 0.01 0.04 11414 Aug 62.50 (WMT LA-E)0.010.00.0 0.030 20656 14 Aug 62.50 (WMT XA-E)7.5514 Aug 65.00 (WMT LM-E)0.020.00.0 0.020 19428 14 Aug 65.00 (WMT XM-E) 10.4314 Aug 67.50 (WMT LR-E)0.010.00.0 0.020 4278 14 Aug 67.50 (WMT XR-E)14 Aug 70.00 (WMT LN-E)0.020.00.0 0.020 4431 14 Aug 70.00 (WMT XN-E)14 Aug 75.00 (WMT LO-E)0.010.00.0 0.0114 Sept 42.50 (WMT AV-E) 12.8214 Sept 45.00 (WMT AI-E)NetBidAsk0.0 13.00 13.1510.75 +0.45 10.65 10.8014 Sept 47.50 (WMT AW-E) 8.82 +1.02 8.40 8.55VolOpenPutsInt28 14 Aug 42.50 (WMT XV-E)358914 Aug 60.00 (WMT XL-E)5LastSaleNetBidAskOpenInt3061250.0 7.05 7.35041440.0 9.40 9.850274310.600.0 11.90 12.40076313.400.0 14.40 14.8505100 1057 14 Aug 75.00 (WMT XO-E) 19.50 +0.25 19.40 19.9510200.27 -0.11 0.28 0.30 21934970.48 -0.01 0.42 0.45 140683551 4946 14 Sept 47.50 (WMT MW-E) 0.61 -0.09 0.67 0.70 179317500215 14 Sept 42.50 (WMT MV-E)55 41905 14 Sept 45.00 (WMT MI-E)44 68621 14 Sept 50.00 (WMT MJ-E)4.70 -0.15 4.70 4.80Vol14 Sept 50.00 (WMT AJ-E)6.60 -0.20 6.30 6.401.05 -0.04 1.06 1.09 210 11933114 Sept 52.50 (WMT AX-E)4.80 -0.15 4.45 4.55 121 3230 14 Sept 52.50 (WMT MX-E)1.53 -0.18 1.67 1.7278352714 Sept 55.00 (WMT AK-E)2.96 -0.34 2.88 2.94 535 49005 14 Sept 55.00 (WMT MK-E)2.51 -0.06 2.60 2.65 3064930314 Sept 57.50 (WMT AY-E)1.84 -0.12 1.68 1.73 192 4390 14 Sept 57.50 (WMT MY-E)3.85 -0.05 3.85 4.0014 Sept 60.00 (WMT AL-E)0.96 -0.04 0.88 0.92 495 67068 14 Sept 60.00 (WMT ML-E)5.9014 Sept 62.50 (WMT AA-E)14 Sept 65.00 (WMT AM-E)14 Sept 70.00 (WMT AN-E)0.04 -0.01 0.03 0.06 150 44079 14 Sept 70.00 (WMT MN-E) 15.758011740.0 5.55 5.700671580.44 -0.07 0.40 0.44 432 3725 14 Sept 62.50 (WMT MA-E)7.60 -1.35 7.60 7.70102440.18 -0.03 0.18 0.219.30 -1.33 9.85 10.005178870131964 82933 14 Sept 65.00 (WMT MM-E)0.0 14.70 14.8514 Sept 75.00 (WMT AO-E)0.01 -0.02 0.01 0.0310 3546 14 Sept 75.00 (WMT MO-E) 20.500.0 19.35 19.950In the questions that follow, use the Last Sale column to answer questions whichinvolve option pricing.(5 pts each)a. What was the premium on the 14 Sept. WMT 47.50 call, i.e., the Wal Mart callwhich expires in Sept. 2014 and has a strike price of $47.50?b. How much would an investor who wanted to buy 1 contract of the 14 Sept.WMT 47.50 call option have had to spend?c. What is the formula for the intrinsic value of a call? What was the intrinsic valueof the 14 Aug. WMT 50 call? Was this option in the money or out of themoney? What was the time value of this option?d. Was the 14 Sept. WMT 60 call in or out of the money? What was the intrinsicvalue of this option? What was the time value of this option?e. What was the premium on the 14 Sept. WMT 60 put? Was this option in or outof the money? What was the intrinsic value of this put? What is the time value?f. What was the intrinsic value of the 14 Aug. WMT 50 put? Was this option in orout of the money? What was the options time value?2. (20 pts)On a recent day, Microsoft stock (symbol: MSFT) was at $25. Assume the nearbyMSFT 25 call was selling for $1. Draw a hockey stick diagram for a long position inthe MSFT 25 call.2593. (40 pts)[Note: Youll find this is a trick question ]If the MSFT 24 call is selling for $2.50, and the MSFT 25 call is selling for $1,construct a bull spread using these calls.a. (20 pts)Construct a table like the ones we did in class showing profit and loss at relevantstock prices for each part of the spread, and the net profit or loss for the entirespread position.b. (20 pts)Draw a hockey stick diagram for the spread, clearly labeling all the critical points.4. (10 pts)Consider a long strangle constructed from options which have an expiration date ofAugust 15, 2014 (the third Friday in August). The following table displays thepossible prices of Boeing stock on August 15, as well as the payoffs accruing tosomeone who holds a long strangle on Boeing stock:Probability0.2Stock price $80Gain from$15long strangle0.3$90$50.2$100$00.2$110$100.1$120$20A long strangle is created using two options. For each option in the strangle above,indicate whether it is a put or a call, whether it is bought or sold, and calculate whatits strike price is. Explain your answer.

 

Paper#45796 | Written in 18-Jul-2015

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