288 Chapter 6 Investments
d. What is the minimum level for this index at which you can exercise your options without losing money?- A company whose share price is currently $74.25 grants its CEO options to buy 10,000 shares at $80 per share.
Suppose you buy 250 shares of this company’s stock at the current market price.
a. If the stock price rises to $100 per share, how much will the CEO make from these options? How much will you
make from your investment?
b. If the stock price drops to $60 per share, how much will the CEO lose? How much will you lose from your
investment?E. Grab Bag
- Reggie went short futures on the GlobalInvestrex 5000 Index. If he had used options instead, would he have bought
puts or calls? - Caldin bought call options on the GlobalInvestrex 5000 Index. If he had used futures instead, would he have gone long
or short? - DJ bought eight put options on the stock of AnyCorp. The stock price is currently $51.75 per share. The strike price was
$50, and the option premium was $4.70.
a. Do these options give DJ the right to buy or sell shares of the company? How many shares does he have the right
to buy/sell?
b. Calculate the total amount DJ paid for these options.
c. Calculate his profi t or loss if the price rises to $60 a share.
d. Calculate his profi t or loss if the price drops to $50 a share.
e. Calculate his profi t or loss if the price drops to $40 a share.- Howard took a position long 5,000 bushels April wheat at $3.22 a bushel. By March, the price of April wheat had risen
to $3.75 a bushel, and Howard decided to close his position.
a. Did Howard make or lose money on this deal?
b. Is it likely that Howard closed his position because of a margin call?
c. Calculate Howard’s profi t or loss.- Suppose that I bought 10 put options on AnyCorp with a strike price of $40. The option premium was $4.78
and I exercised by options when the price had fallen to $30. Calculate my return as a percent. If the time for this
investment was 82 days, calculate my return as a percent rate. - Suppose that you buy call options on Zarofi re Systems for $8.25. The strike price is $45. What is the minimum price at
which you can exercise without losing money?