80.2K

Verified Solution

Link Copied!

Intro Apple currently trades at $593. Part 1 Attempt 1/3 for 10 pts. You can buy a 3-month put option on Apple stock with a strike price of $588 for $33.2. How much do you have to pay to establish a protective put position for a single unit? 626.20 Correct A protective put is the combination of owning a stock and a put option for that stock. Therefore, we have to buy the stock and the put option: Cost = S + P = 593 + 33.2 = 626.2 Attempt 1/3 for 10 pts. Part 2 In reality, you cannot buy a single option, only an option contract. According to the CBOE website, how many shares of the underlying stock are covered by 1 option contract for equity options? 100 Correct The equity option specifications show that each contract covers 100 stocks. Part 3 - Attempt 1/3 for 10 pts. From now on, assume you bought 1 put option contract (and no stocks). What is the option payoff at expiration if the stock price has risen to $595? 0 Correct Payoff for a long put = max (0, X ST) = max (0,588 595) = 0 Since the stock price is greater than the strike price, we will not exercise the put options, and thus get a payoff of 0. However, our profit will be negative (a loss), since we had to pay for the options. * Attempt 2/3 for 9 pts. Part 4 What is the option payoff at expiration if the stock price has fallen to $578? 1000 Correct Payoff of long in-the-money put = X ST = 588 578 = 10 Total payoff for 100 options = 100 * 10 = 1,000 Attempt 3/3 for 8 pts. Part 5 What is your total profit with a stock price of $578? 0+ decimals Submit

Answer & Explanation Solved by verified expert

See Answer