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Call Options

Use the option quote information shown to answer the questions that follow. The stock price is currently selling for $83.

Option and NY Expiration Strike/Exercise Calls Puts
Close Price Vol. Last Vol. Last

RWJ

March 80 230 2.80 160 .80
April 80 170 6 127 1.40
July 80 139 8.05 43 3.90
October 80 60 10.20 11 3.65

a. Are the call options in the money? What is the intrinsic value of an RWJ Corp. call option?
b. Are the put options in the money? What is the intrinsic value of an RWJ Corp. put option?
c. Two of the options are clearly mispriced. Which one? At a minimum, what should the mispriced option sell for? Explain how you could profit from the mispricing in each case

Solution Preview

a. The call options are in the money as the current stock price is greater than the exercise price. The intrinsic value of the call options is 83-80=3

b. The put options are out of the money as the strike price is less than the ...

Solution Summary

The solution goes into a fair amount of detail pertaining to the question being asked. The explanation is very good and yet concise and to the point. It is also very easy to follow along. Overall, a very good answer to the question being asked.

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