INVESTMENT ANALYSIS AND PORTFOLIO THEORY Fall 2015 Homework 10

INVESTMENT ANALYSIS AND PORTFOLIO THEORY

Fall 2015

Homework 10

OPTION PAYOFF

1. Option Strategies

Following are June call and put options on Pfizer (PFE) whose price is $31.10

CALLS				Puts
Strike	Premium			Strike	Premium
23	7.75			19	0.05
24	6.3			20	0.1
25	5.3			21	0.09
26	4.45			22	0.08
27	4			23	0.13
28	3.05			24	0.15
29	2.6			25	0.23
30	1.86			26	0.33
31	1.32			27	0.4
32	0.93			28	0.56
33	0.55			29	0.86
34	0.38			30	1.25
35	0.15			31	1.75
37	0.06			32	2.67
38	0.04			33	3.55

a. Determine the intrinsic value and time value of the following options:

Call with strike of 27

Put with strike of 27

Call with strike of 33

Put with strike of 33

b. Draw the payoff profile and P&L of the above options at expiry.

c. Draw the payoff profile, P&L and breakeven price for the following option strategies at expiry.

Determine when the strategy makes money; (if the price rises or falls?)

Determine if initially you will be net receiver or payer of money:

Bull Call Spreads:

Buy a call with strike 31 and sell a call with strike of 35.

Bull Put Spreads:

Sell a put with strike 33 and buy a put with strike of28

Bear Call Spreads:

Sell a call with strike 29 and buy a call with strike of 33

Bear Put Spreads:

Buy a put with strike 32 and sell a put with strike of 27