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TJH call option, Wyslow, Inc., PLT stock, Blue Light Special

8) You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires today when the value of TJH stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on your investment?

9) Several rumors concerning Wyslow, Inc. stock have started circulating. These rumors are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-month put and a call option on this stock with an exercise price of $15. You purchased the call at a quoted price of $.20 and the put at a price of $2.10. What will be your total profit or loss on these option positions if the stock price is $4 on the day the options expire?

10) You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment?

11) The assets of Blue Light Specials are currently worth $2,100. These assets are expected to be worth either $1,800 or $2,300 one year from now. The company has a pure discount bond outstanding with a $2,000 face value and a maturity date of one year. The risk-free rate is 5%. What is the value of the equity in this firm?

Solution Preview

8) You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires today when the value of TJH stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on your investment?

Total price for using call option = (40 + 1.30) x 6 options x 100 shares/option
= 24,780
Total value of TJH stock = 41.90 x 6 options x 100 shares/option
= 25,140
Total profit = 25,140 - 24,780 = 360 or (360/600 shares = 0.60/share)

9) Several rumors concerning Wyslow, Inc. stock ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is your total profit or loss on your investment, what will be your total profit or loss on these option positions if the stock price is $4 on the day the options expire, and what is the value of the equity in this firm.

$2.19