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Futures and Option Trading Prices

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.

$2.19