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Futures and Option Trading Prices

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Present equations in words
1. Look at the option quotes:

Option trading prices
a. What is the closing price of the common stock of SINGLE Systems?
b. What is the highest strike price listed?
c. What is the price of a December 20 call option?
d. What is the price of a January 22.50 put option?

2. Assume a stock is selling for $66.75 with options available at 60, 65, and 70 strike prices. The 65 call option price is at $4.50.
Option trading terms
a. What is the intrinsic value of the 65 call?
b. Is the 65 call in the money?
c. What is the speculative premium on the 65 call option?
d. What percentage does the speculative premium represent of common stock price?
e. Are the 60 and 70 call options in the money?

3. Assume on May 1 you are considering a stock with three different expiration dates for the 60 call options. The percentage of the speculative premium for each date is as follows:
Speculative premium per day

Each contract expires at 11:59 p.m. Eastern time on the Saturday immediately following the third Friday of the expiration month. For purposes of this problem, assume the May option has 21 days to run, the August option has 112 days, and the November option has 203 days.
a. Compute the percentage speculative premium per day for each of the three dates.
b. From the viewpoint of a call option purchaser, which expiration date appears most attractive (all else being equal)?
c. From the viewpoint of a call option writer, which expiration date appears most attractive (all else being equal)?

4. You purchase a 5,000-bushel contract for corn at $1.90 per bushel ($9,500 total). The initial margin requirement is 7 percent. The price goes up to $1.98 in one month. What is your percentage profit and the annualized gain?

5. Farmer Tom Hedges anticipates taking 100,000 bushels of oats to the market in three months. The current cash price for oats is $2.15. He can sell a three-month futures contract for oats at $2.20. He decides to sell 10 5,000-bushel futures contracts at that price. Assume that in three months when Farmer Hedges takes the oats to market and also closes out the futures contracts (buys them back), the price of oats has tumbled to $2.03
a. What is his total loss in value over the three months on the actual oats he produced and took to market?
b. How much did his hedge in the futures market generate in gains?
c. What is the overall net loss considering the answer in part a and the partial hedge in part b.

6. what is the total value of an S&P 500 Index futures contract for December 2006? Use the settle price and the appropriate multiplier. Also, if the required margin is $20,000, what percent of the contract value does margin represent? Based on the table below:

Problem 9: S&P 500 call options

7. The following problem relates to data in table below. Assume you purchase an August 1250 (strike price) S&P 500 call option. Compute your total dollar profit or loss if the index has the following values at expiration:
a. 1305
b. 1285
c. 1230

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The answers have also been provided in the attached word file
Present equations in words
1. Look at the option quotes:

Option trading prices
a. What is the closing price of the common stock of SINGLE Systems?
$ 18.93
b. What is the highest strike price listed?
$ 25.00
c. What is the price of a December 20 call option?
$ 1.10
d. What is the price of a January 22.50 put option?
$ 4.20
2. Assume a stock is selling for $66.75 with options available at 60, 65, and 70 strike prices. The 65 call option price is at $4.50.
Option trading terms
a. What is the intrinsic value of the 65 call?
Intrinsic value of call option = Stock price - Exercise price
= $ 66.75- $65 = $1.75
b. Is the 65 call in the money?
Yes, as the intrinsic value > 0
A call option is in the money when stock price > Exercise (strike) price

c. What is the speculative premium on the 65 call option?
Speculative premium = Call option price - Intrinsic value
= $ 4.50 - $ 1.75 = $ 2.75
d. What percentage does the speculative premium represent of common stock price?
$ 2.75 / $ 66.75 = 4.12%
e. Are the 60 and 70 call options in the money?

A call option is in the money when stock price > Exercise (strike) price
60 call is in the money as the stock price ($ 66.75) > strike price ($60)

70 call is not in the money as the stock price ($ 66.75) < strike price ($70)

3. Assume on May 1 you are considering a stock with three different ...

Solution Summary

Answers questions on futures and options contracts.

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See Also This Related BrainMass Solution

Options, Warrants , Futures and Bonds

Please see the attached file.

Q1- Consider a European call option on stock (A) that that expires on December 21 and has a strike price of $50.
a. If stock A is trading at $55 on December 21, what is the payoff to the owner of the option?
b. If stock A is trading at $55 on Dec. 21, what is the payoff to the seller of the option?
c. If stock A is trading at $45 on Dec. 21, what is the payoff to the owner of the option?
d. If stock A is trading at $45 on Dec. 21, what is the payoff to the seller of the option?
e. Draw the payoff diagram to the owner of this option with respect to the stock price at expiration.
f. Draw the payoff diagram to the seller of this option with respect to the stock price at expiration.
g. If the seller of a call option never receives cash at expiration, why should anyone ever sell a call option?

Q2- MMInc. Must purchase gold in three months to use in its operations. The management has estimated that if the price of gold were to rise above $375 per ounce, the firm would go bankrupt. The current price of gold os $350 per ounce;. The firm's CFO believes that the price f gold will either rise to $400 per ounce or fall to $325 per ounce over the next three months. Management wishes to eliminate any risk of going bankrupt . MMInc. Can borrow and lend at the risk free interest rate of 16.99% per annum(effective annual yield) .
a. Would MMInc. be interested in buying a call option or a put option on the price of gold? In order to avoid bankruptcy, what strike price and time to expiration would the firm like this option to have?
b. How much should such an option sell for in the open market?
c. If no option currently trade on gold, is there a way for the company to creat a synthetic option which identifies payoffs to the option described above? If there is, how would the firm do it?
d. How much does the synthetic option cost? Is this greater than , less than, or equal to what the actual option costs? Does this make sense?

Q3
a. What is the primary difference between warrants and call options?
b. Why is this difference important? What is dilution?

Q4 Explain three ways in which futures contracts differ from forward contracts

Q5 Consider three zero-coupon, $1000 face value bonds . bond A matures one year from today, bond B matures five years from today, and bond C matures ten years from today. The current market interest rate is 11% per annum (effective annual yield).
a. What is the current price of each bond?
b. If the market interest rate suddenly rises to 14% per annum , what wil be the price of each of these bonds?
c. Which bond experienced the greatest percentage change in price?

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