You buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract. a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value? c. What is your net profit if IBM’s stock price decreases to $130? d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)
You buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract. a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value? c. What is your net profit if IBM’s stock price decreases to $130? d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract.
a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option?
b. How much of the option premium is due to intrinsic value versus time value?
c. What is your net profit if IBM’s stock price decreases to $130?
d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price...
(Please give the full solution I will upvote)
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