Given the Black-Scholes-Merton Model:
The Microsoft stock price is 25.80 and the risk free rate is 0.20%. The option expires on July 15th and is 17 days to maturity.
a. Calculate the intrinsic value and the price of a call option with a strike of $25, assume 23% volatility.
b. Calculate the intrinsic value and the price of a call option with a strike of $26, assume 19% volatility
c. Use the put-call parity relation to price put option with a $25 strike. Show that put contract intrinsic value too.
Check your results against the table below.
This solution shows an example of how to use the Black-Scholes-Merton calculation and put-to-call parity to price a call and put option.