Name _____________________________ Last 4 (PSU ID) ________
First 2 letters of last name _____
Homework Assignment #1 – Econ 351 –Fall 2014 –PLEASE STAPLE, DUE, WEDNESDAY, 9/17/2014
AT THE BEGINNING OF CLASS: NO LATE HWS ACCEPTED.
YOU MUST USE THIS AS A TEMPLATE – HIT ENTER TO MAKE SPACE FOR YOUR
ANSWERS Please be a neat as possible, especially with graphs and please show all work.
1) (40 points total) Use the information in the following 3 Tables to answer the following questions. As is
normal, we assume away all transactions costs.
TABLE 1
GOOG (GOOGLE INC)
364.72 +11.00
Feb 06, 2009 @ 11:20 ET
Bid 364.72 Ask 364.82 Size 2x1 Vol 2039260
Calls
Last
Sale
Net
Bid
Ask Vol
Open
Puts
Int
Last
Net
Sale
Bid
Ask Vol
Open
Int
09 Feb 350.00 (GGD BJ-E) 21.70 +8.40 21.30 21.60 181 8056 09 Feb 350.00 (GGD NJ-E)
6.60 -3.90 6.50 6.70 178 1815
09 Feb 360.00 (GGD BL-E) 14.75 +6.55 14.50 14.80 384 5936 09 Feb 360.00 (GGD NL-E)
9.80 -5.60 9.70 9.90 481 1478
09 Feb 370.00 (GGD BN-E)
9.15 +5.05 9.00 9.30 501 5414 09 Feb 370.00 (GGD NN-E) 14.90 -7.50 14.30 14.50 46
569
09 Feb 380.00 (GOP BP-E)
5.15 +3.15 5.20 5.30 296 4972 09 Feb 380.00 (GOP NP-E) 20.10 -9.20 20.20 20.60 93
228
09 Mar 350.00 (GGD CJ-E) 28.75 +6.20 29.50 29.90 31 4685 09 Mar 350.00 (GGD OJ-E) 15.60 -3.90 14.70 15.00 20 1932
09 Mar 360.00 (GGD CL-E) 23.00 +5.60 23.30 23.60 38 3017 09 Mar 360.00 (GGD OL-E) 18.80 -5.00 18.40 18.70 22
09 Mar 360.00 (TBZ CL-E)
0
09 Mar 370.00 (GGD CN-E) 17.85 +5.25 17.80 18.20 22 3710 09 Mar 370.00 (GGD ON-E) 24.60 -5.30 23.00 23.30 11
859
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0
0
0 09 Mar 360.00 (TBZ OL-E)
0 09 Mar 370.00 (TBZ ON-E)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
631
0
09 Mar 370.00 (TBZ CN-E)
0.0
0.0
0
0
09 Mar 380.00 (GOP CP-E) 13.20 +4.30 13.30 13.50 38 2395 09 Mar 380.00 (GOP OP-E) 28.40 -8.40 28.30 28.70
6 1057
09 Mar 380.00 (TBZ CP-E)
0
0.0
0.0
0.0
0.0
0
0 09 Mar 380.00 (TBZ OP-E)
0.0
0.0
0.0
0.0
0
TABLE 2
GOOG (GOOGLE INC)
370.97 -7.80
Feb 10, 2009 @ 10:44 ET
Bid 371.03 Ask 371.15 Size 1x1 Vol 1362459
Calls
Last
Net
Sale
Bid
Ask Vol
Open
Puts
Int
09 Feb 360.00 (GGD BL-E) 17.90 -6.00 18.30 18.70 37 5473 09 Feb 360.00 (GGD NL-E)
Last
Sale
Net
Bid
Ask Vol
Open
Int
7.35 +1.95 7.20 7.40 338 2975
09 Feb 370.00 (GGD BN-E) 12.20 -4.80 12.10 12.60 131 5283 09 Feb 370.00 (GGD NN-E) 11.60 +3.40 11.00 11.40 728 2052
09 Feb 380.00 (GOP BP-E)
7.35 -3.75 7.60 7.90 250 5469 09 Feb 380.00 (GOP NP-E) 16.90 +4.40 16.30 16.70 96
852
09 Feb 390.00 (GOP BR-E)
4.35 -2.25 4.40 4.60 48 3943 09 Feb 390.00 (GOP NR-E) 24.00 +5.20 23.10 23.60 27
391
09 Mar 360.00 (GGD CL-E) 33.30
0.0 27.90 28.30
0 3277 09 Mar 360.00 (GGD OL-E) 16.10 +2.00 16.70 17.10
2
976
09 Mar 360.00 (TBZ CL-E)
0.0
0
0
0
0.0
0.0
0.0
0 09 Mar 360.00 (TBZ OL-E)
0.0
0.0
0.0
0.0
09 Mar 370.00 (GGD CN-E) 22.00 -5.00 22.10 22.50 18 3571 09 Mar 370.00 (GGD ON-E) 21.30 +3.25 20.90 21.20 13 1635
09 Mar 370.00 (TBZ CN-E)
0.0
0.0
0.0
0.0
0
0 09 Mar 370.00 (TBZ ON-E)
0.0
0.0
0.0
0.0
0
0
09 Mar 380.00 (GOP CP-E) 18.20 -2.85 17.10 17.50 29 2667 09 Mar 380.00 (GOP OP-E) 26.30 +3.70 25.80 26.20 24 1158
09 Mar 380.00 (TBZ CP-E)
0.0
0.0
0.0
0.0
0
0 09 Mar 380.00 (TBZ OP-E)
0.0
0.0
0.0
0.0
0
0
09 Mar 390.00 (GOP CR-E) 13.85 -2.85 12.90 13.20 10 2722 09 Mar 390.00 (GOP OR-E) 30.05
0.0 31.50 31.90
0 1173
09 Mar 390.00 (TBZ CR-E)
0.0
0
0.0
0.0
0.0
0.0
0
0 09 Mar 390.00 (TBZ OR-E)
0.0
0.0
0.0
0
1
TABLE 3
GOOG (GOOGLE INC)
358.04 0.0
Feb 12, 2009 @ 07:20 ET
Bid 350.00 Ask 361.99 Size 1x1 Vol 0
Calls
Last
Open
Net Bid Ask Vol
Puts
Sale
Int
Last
Open
Net Bid Ask Vol
Sale
Int
09 Feb 340.00 (GGD BE-E) 22.20 0.0 0.0 0.0
0 6062 09 Feb 340.00 (GGD NE-E)
3.70 0.0 0.0 0.0
0 4079
09 Feb 350.00 (GGD BJ-E) 13.45 0.0 0.0 0.0
0 7255 09 Feb 350.00 (GGD NJ-E)
6.50 0.0 0.0 0.0
0 4171
09 Feb 360.00 (GGD BL-E)
8.40 0.0 0.0 0.0
0 5426 09 Feb 360.00 (GGD NL-E) 10.95 0.0 0.0 0.0
0 2512
09 Feb 370.00 (GGD BN-E)
4.30 0.0 0.0 0.0
0 6163 09 Feb 370.00 (GGD NN-E) 17.00 0.0 0.0 0.0
0 2939
09 Mar 340.00 (GGD CE-E) 32.40 0.0 0.0 0.0
0 1339 09 Mar 340.00 (GGD OE-E) 13.70 0.0 0.0 0.0
0 1850
09 Mar 350.00 (GGD CJ-E) 23.90 0.0 0.0 0.0
0 4392 09 Mar 350.00 (GGD OJ-E) 16.60 0.0 0.0 0.0
0 4891
09 Mar 360.00 (GGD CL-E) 19.80 0.0 0.0 0.0
0 3195 09 Mar 360.00 (GGD OL-E) 21.45 0.0 0.0 0.0
0 1198
09 Mar 360.00 (TBZ CL-E)
0
0
0.0 0.0 0.0 0.0
0 09 Mar 360.00 (TBZ OL-E)
0.0 0.0 0.0 0.0
0
09 Mar 370.00 (GGD CN-E) 14.45 0.0 0.0 0.0
0 3768 09 Mar 370.00 (GGD ON-E) 25.80 0.0 0.0 0.0
0 1525
09 Mar 370.00 (TBZ CN-E)
0
0
0.0 0.0 0.0 0.0
0 09 Mar 370.00 (TBZ ON-E)
0.0 0.0 0.0 0.0
0
a). ( 5 points) Referring to Table 1, why the difference in the premiums on a Feb 360 call vs. the Feb 370
put? Be very specific.
THE 360 CALL IS ONLY $4.72 IN THE MONEY WHERE THE 370 PUT IS $5.28 IN THE MONEY
AND THUS, THE PREMIUM ON THE PUT IS HIGHER THAN THE PREMIUM ON CALL ($1490 VS.
$1475 RESPECTIVELY).
You and a friend are not sure of the direction Google is going to go so you both decide to play what is
known in option talk as straddle(s). You decide to play a short straddle and your friend decides to play a
long straddle. Please answer the following questions.
b) (5 points) Referring to Table 1, suppose you played a short straddle by writing one March 360 call and
one March 360 put. What is the optimal spot price at expiration and why? Explain exactly what would
happen at expiration given the optimal spot price at expiration.
THE OPTIMAL PRICE AT EXPIRATION IS $360 OR 'AT THE MONEY .' WHEN BOTH OPTIONS
EXPIRE AT THE MONEY, THE WRITER WHO IS PLAYING THE SHORT STRADDLE SIMPLY
GETS TO KEEP BOTH PREMIUMS = $1475 FOR CALL AND $980 FOR PUT. THE OPTIONS ARE
WORTHLESS TO THE PERSON WHO BOUGHT THEM SINCE THEY ARE AT THE MONEY.
c) (5 points) Referring to Table 1, your friend decides to play a long straddle by buying one March 360 call
and one March 360 put. What is the optimal spot price at expiration and why? Explain exactly what would
happen at expiration given the optimal spot price at expiration.
THINK OF EXTREMES HERE - EITHER ZERO OR INFINITY. INFINITY IS WAY BETTER - YOU
WOULD EXERCISE THE CALL BY BUYING ONE HUNDRED SHARES OF GOOGLE AT STRIKE
PRICE = $360 AND SELL A 100 SHARES AT INFINITY!!!
IF YOU CONSIDER ZERO AS THE OPTIMAL SPOT PRICE, YOUR PROFITS ARE LIMITED - BUY
AT ZERO (OR DARN CLOSE TO IT) AND USE PUT TO SELL 100 SHARES AT $360 = $36,000
MINUS THE PRICE OF THE OPTIONS THAT YOU BOUGHT TO PLAY THE LONG STRADDLE.
2
d) (10 points - 5 for correct calculations and 5 for intuition) Given your short straddle bet as above, would
it be better to close your position in Table 2 or Table 3? Show all work. Explain the intuition.
YOU COLLECT THE PREMIUMS IN TABLE 1 = $2300 + $1880 = $ 4,180
CLOSE ON TABLE 2
BUY CALL AT $3330 AND PUT AT $1610 = $4940
LOSS OF $ 760
CLOSE ON TABLE 3
BUY CALL AT $1980 AND PUT AT $2145 = $4125 PROFIT OF $55
WHEN PLAYING A SHORT STRADDLE I AM HOPING FOR LOW VOLATILITY - I WANT THE
SPOT TO REMAIN NEAR OR AT THE MONEY SO I CAN COLLECT TERM PREMIUMS.
CONSIDERING TABLE 2, THE SPOT MOVED FAR FROM THE MONEY (HIGHLY VOLATILE)
AND I LOST BIG TIME ON THE CALL I WROTE, NOT GOOD. ITS A MUCH HAPPIER STORY
WHEN CONSIDERING TABLE 3 WHERE THE SPOT IS VERY CLOSE TO THE MONEY, CLOSER
TO THE MONEY RELATIVE TO WHEN I WROTE THEM. I CLOSE AT TABLE THREE AND
MAKE A PROFIT AND BENEFITED FROM THE LOW VOLATILITY
e) (10 points - 5 for correct calculations and 5 for intuition) Given the long straddle played by your friend,
would it be better to close his/her position in Table 2 or Table 3? Show all work. Explain the intuition.
BUY THE OPTIONS AT TABLE 1 - COST = $2300 + $1,880 = $ 4, 180
CLOSE ON TABLE 2
SELL CALL AT $3330 AND PUT AT $1610 = $4940
PROFIT OF $760
CLOSE ON TABLE 3
SELL CALL AT $1980 AND PUT AT $2145 = $4125 LOSS OF $55
WHEN PLAYING A LONG STRADDLE I AM HOPING FOR HIGH VOLATILITY - I WANT THE
WINNING BET TO MAKE MORE ($) THAN THE LOSING BET LOSES. CONSIDERING TABLE
2, THE SPOT MOVED FAR FROM THE MONEY (HIGHLY VOLATILE) AND I WON BIG TIME ON
THE CALL I BOUGHT (PROFIT OF $1030) AND ONLY LOST $270 ON MY PUT. WHEN
CONSIDERING TABLE 3, THE SPOT IS VERY CLOSE TO THE MONEY, CLOSER TO THE
MONEY RELATIVE TO WHEN I BOUGHT THEM, NOT GOOD WHEN I AM BETTING ON HIGH
VOLATILITY. WHEN I CLOSE AT TABLE 3 I MAKE A LOSS, MY WINNING BET WON LESS
THAT MY LOSING BET LOST (MADE $ 265 ON PUT BUT LOST $ 320 ON CALL)
f) (5 points) How your answers in d) and e) are related. What characteristic of options markets applies
here? Explain.
ZERO SUM GAME - IF THEY BOTH CLOSE ON TABLE 2, THE WRITERS LOSS IS THE BUYERS
GAIN AND IF THEY CLOSE ON TABLE 3, THE WRITERS GAIN IS THE BUYERS LOSS.
3
2. (35 points total) Use the following 3 tables to answer the questions that follow. In this example, you
are betting on Apple Computer (AAPL). We assume away all transactions costs and as always, use the
‘last sale’ column for your calculations.
Table 1
AAPL
Spot 86.07 +0.69
Jan 29, 2007 @ 14:02 ET (Data 15 Minutes Delayed)
Calls
Last
Sale
Bid 86.07 Ask 86.08 Size 6x5 Vol 23250849
Net Bid Ask Vol
Open
Puts
Int
Last
Sale
Net Bid Ask Vol
Open
Int
07 Feb 80.00 (QAA BP-E)
6.90 +0.40 6.70 6.90 518
10949 07 Feb 80.00 (QAA NP-E)
0.45 -0.15 0.45 0.50 993
67909
07 Feb 85.00 (QAA BQ-E)
3.30 +0.35 3.10 3.30 2312
32373 07 Feb 85.00 (QAA NQ-E)
1.80 -0.45 1.85 1.90 791
54682
07 Feb 90.00 (QAA BR-E)
1.15 +0.05 1.10 1.20 2620
63672 07 Feb 90.00 (QAA NR-E)
4.60 -0.80 4.80 4.90 1553
29167
07 Feb 95.00 (QAA BS-E)
0.35
68004 07 Feb 95.00 (QAA NS-E)
8.90 -0.80 9.00 9.20
32
16568
07 Mar 80.00 (QAA CP-E)
8.20 +0.10 8.10 8.20
1896 07 Mar 80.00 (QAA OP-E)
1.53 -0.07 1.50 1.55
80
14199
07 Mar 85.00 (QAA CQ-E)
5.10 +0.40 4.90 5.00 109
7754 07 Mar 85.00 (QAA OQ-E)
3.20 -0.30 3.20 3.40
86
12829
07 Mar 90.00 (QAA CR-E)
2.80 +0.30 2.65 2.75 939
11529 07 Mar 90.00 (QAA OR-E)
5.90 -0.53 6.00 6.10
90
6339
07 Mar 95.00 (QAA CS-E)
1.40 +0.10 1.30 1.35 707
22854 07 Mar 95.00 (QAA OS-E)
9.70
41
831
-- 0.30 0.40 2284
15
-- 9.70 9.80
Table 2
AAPL
Spot 84.15 pc
Feb 07, 2007 @ 05:33 ET (Data 15 Minutes Delayed)
Calls
Bid 84.24 Ask 84.39 Size 1x1 Vol 0
Last Sale Net Bid Ask Vol Open Int Puts
Last Sale Net Bid Ask Vol Open Int
07 Feb 75.00 (QAA BO-E)
9.40 pc
0
0
0
8423 07 Feb 75.00 (QAA NO-E)
0.10 pc
0
0
0
18792
07 Feb 80.00 (QAA BP-E)
4.70 pc
0
0
0
11589 07 Feb 80.00 (QAA NP-E)
0.40 pc
0
0
0
63849
07 Feb 85.00 (QAA BQ-E)
1.40 pc
0
0
0
44992 07 Feb 85.00 (QAA NQ-E)
2.10 pc
0
0
0
59271
07 Feb 90.00 (QAA BR-E)
0.30 pc
0
0
0
75026 07 Feb 90.00 (QAA NR-E)
6.00 pc
0
0
0
31047
07 Mar 75.00 (QAA CO-E)
10.20 pc
0
0
0
519 07 Mar 75.00 (QAA OO-E)
0.55 pc
0
0
0
7528
07 Mar 80.00 (QAA CP-E)
6.00 pc
0
0
0
3501 07 Mar 80.00 (QAA OP-E)
1.50 pc
0
0
0
20313
07 Mar 85.00 (QAA CQ-E)
3.10 pc
0
0
0
13643 07 Mar 85.00 (QAA OQ-E)
3.60 pc
0
0
0
16993
07 Mar 90.00 (QAA CR-E)
1.40 pc
0
0
0
17418 07 Mar 90.00 (QAA OR-E)
7.70 pc
0
0
0
6193
4
Table 3
AAPL
Spot 89.07 -0.44
Feb 25, 2007 @ 07:23 ET (Data 15 Minutes Delayed)
Calls
Bid 89.00 Ask 89.05 Size 222x3 Vol 18512199
Last Sale Net Bid Ask Vol Open Int Puts
Last Sale Net Bid Ask Vol Open Int
07 Mar 80.00 (QAA CP-E)
9.50 pc
0
0
0
7128 07 Mar 80.00 (QAA OP-E)
0.18 pc
0
0
0
28225
07 Mar 85.00 (QAA CQ-E)
5.00 pc
0
0
0
31825 07 Mar 85.00 (QAA OQ-E)
0.69 pc
0
0
0
32518
07 Mar 90.00 (QAA CR-E)
1.80 pc
0
0
0
63517 07 Mar 90.00 (QAA OR-E)
2.55 pc
0
0
0
12632
07 Mar 95.00 (QAA CS-E)
0.50 pc
0
0
0
36470 07 Mar 95.00 (QAA OS-E)
6.10 pc
0
0
0
4840
07 Apr 80.00 (QAA DP-E)
10.50 pc
0
0
0
22325 07 Apr 80.00 (QAA PP-E)
0.85 pc
0
0
0
33147
07 Apr 85.00 (QAA DQ-E)
6.90 pc
0
0
0
40127 07 Apr 85.00 (QAA PQ-E)
1.90 pc
0
0
0
52241
07 Apr 90.00 (QAA DR-E)
3.70 pc
0
0
0
67784 07 Apr 90.00 (QAA PR-E)
4.00 pc
0
0
0
29874
07 Apr 95.00 (QAA DS-E)
1.90 pc
0
0
0
67807 07 Apr 95.00 (QAA PS-E)
7.20 pc
0
0
0
19907
a) (5 points) Use Table 1 to answer this question. Suppose you purchase a Feb 80 call and exercise it
immediately, how much money would you make or lose? Show all work.
COST OF OPTION (PREMIUM) = $ 690, BUY 100 SHARES AT $80 = $8,000 TOTAL COST =
$8,690
SELL AT SPOT = 100 x $86.07 = $8,607 = REVENUE LOSS = $83
b) (5 points) Use Table 2 to answer this question. Assume that we freeze the spot as it is in Table 2, Feb
07, until the March options expires. On the same diagram, plot the evolution of the term premium for the
March 85 put and the March 90 put. Please label your diagram completely making sure you clearly indicate
which option each line represents.
5
(25 points for completely labeled graph – 5 points off for each blemish!) Suppose you are bullish on
Apple and purchase ten Feb 80 calls (use Table 1). As we did in class, graphically illustrate the profit/loss
function of the Feb 80 calls that you purchased on Jan 29 (Table 1), clearly labeling the out of the money
spot, at the money spot, in the money spot, and the break even point (this is all relative to the Feb 80 call in
Table 1). Label the horizontal line in your graph as spot at expiration and have the vertical axis as the
profit/loss under each scenario (just like we did in class). Please consider the following 3 scenarios:
Scenario 1): the spot price of Apple stays the same as in Table 1 and your options expire. Locate this point
on your diagram as point A, clear labeling the profit or loss associated with this scenario. Show all work.
Scenario 2): the options expire with the spot price of Apple on Table 2 and your position is closed (either
you exercise your options, sell them, or rip them up, which ever is best for you). Locate the specific profit
or loss on your diagram and label as point B. Show all work.
Scenario 3): the options expires with the spot price of Apple on Table 3 and your position is closed (either
you exercise your options, sell it, or rip them up, which ever is best for you). Locate the specific profit or
loss on your diagram and label as point C. Show all work.
6
3. (45 points total) Use the following 3 tables to answer the questions that follow. In this example, you are
betting on Google (GOOG). We assume away all transactions costs and as always, use the ‘last sale’
column for your calculations.
Table 1
GOOG (GOOGLE INC)
370.97 -7.80
Feb 04, 2009 @ 10:44 ET
Bid 371.03 Ask 371.15 Size 1x1 Vol 1362459
Calls
Last
Net
Sale
Bid
Ask Vol
Open
Puts
Int
Last
Sale
09 Feb 360.00 (GGD BL-E) 17.90 -6.00 18.30 18.70 37 5473 09 Feb 360.00 (GGD NL-E)
Net
Bid
Ask Vol
Open Int
7.35 +1.95 7.20 7.40 338
2975
09 Feb 370.00 (GGD BN-E) 12.20 -4.80 12.10 12.60 131 5283 09 Feb 370.00 (GGD NN-E) 11.60 +3.40 11.00 11.40 728
2052
09 Feb 380.00 (GOP BP-E)
7.35 -3.75 7.60 7.90 250 5469 09 Feb 380.00 (GOP NP-E) 16.90 +4.40 16.30 16.70 96
852
09 Feb 390.00 (GOP BR-E)
4.35 -2.25 4.40 4.60 48 3943 09 Feb 390.00 (GOP NR-E) 24.00 +5.20 23.10 23.60 27
391
09 Mar 360.00 (GGD CL-E) 33.30
0.0 27.90 28.30
0 3277 09 Mar 360.00 (GGD OL-E) 16.10 +2.00 16.70 17.10
2
09 Mar 360.00 (TBZ CL-E)
0.0
0
0
0
09 Mar 370.00 (GGD CN-E) 22.00 -5.00 22.10 22.50 18 3571 09 Mar 370.00 (GGD ON-E) 21.30 +3.25 20.90 21.20 13
1635
09 Mar 370.00 (TBZ CN-E)
0.0
0
1173
09 Mar 390.00 (TBZ CR-E)
0.0
0
0
0 09 Mar 390.00 (TBZ OR-E)
0.0
0.0
0.0
0
0
0.0
0.0
0.0 31.50 31.90
0.0
0.0
0.0
976
09 Mar 390.00 (GOP CR-E) 13.85 -2.85 12.90 13.20 10 2722 09 Mar 390.00 (GOP OR-E) 30.05
0.0
0 09 Mar 380.00 (TBZ OP-E)
0.0
0.0
0
0.0
0
0 09 Mar 370.00 (TBZ ON-E)
0.0
0.0
0.0
0.0
0
0.0
1158
0.0
0.0
0.0
09 Mar 380.00 (GOP CP-E) 18.20 -2.85 17.10 17.50 29 2667 09 Mar 380.00 (GOP OP-E) 26.30 +3.70 25.80 26.20 24
0.0
0.0
0 09 Mar 360.00 (TBZ OL-E)
0
0.0
0.0
0.0
0
09 Mar 380.00 (TBZ CP-E)
0.0
0.0
0.0
0.0
Table 2
GOOG (GOOGLE INC)
353.72 +10.72
Feb 06, 2009 @ 16:19 ET
Bid 352.36 Ask 352.87 Size 4x1 Vol 7228281
Calls
Last
Sale
Net
Bid
Ask Vol
Open
Puts
Int
09 Feb 340.00 (GGD BE-E) 19.70 +5.90 19.70 20.60 618 6708 09 Feb 340.00 (GGD NE-E)
Last
Net
Sale
Bid
Ask Vol
Open Int
7.05 -3.85 6.90 7.20 1058
1948
09 Feb 350.00 (GGD BJ-E) 13.30 +4.70 13.20 13.50 762 7832 09 Feb 350.00 (GGD NJ-E) 10.50 -5.00 10.20 10.70 434
1181
09 Feb 360.00 (GGD BL-E)
8.20 +3.20 8.20 8.60 742 5867 09 Feb 360.00 (GGD NL-E) 15.40 -5.00 14.70 15.50 186
09 Feb 370.00 (GGD BN-E)
4.10 +1.25 4.40 4.70 558 5037 09 Feb 370.00 (GGD NN-E) 21.80 -7.20 20.80 21.70
80
451
09 Mar 340.00 (GGD CE-E) 29.00 +5.20 28.30 29.30 49 1325 09 Mar 340.00 (GGD OE-E) 16.20 -3.00 15.40 16.00
26
1481
09 Mar 350.00 (GGD CJ-E) 22.55 +4.65 22.30 23.20 78 4633 09 Mar 350.00 (GGD OJ-E) 19.50 -4.60 19.20 19.90
60
1820
09 Mar 360.00 (GGD CL-E) 17.40 +3.10 17.00 17.70 120 2685 09 Mar 360.00 (GGD OL-E) 23.80 -5.30 23.80 24.50
34
591
09 Mar 360.00 (TBZ CL-E)
0.0
0.0
0
0
09 Mar 370.00 (GGD CN-E) 12.60 +1.50 12.60 13.20 132 3634 09 Mar 370.00 (GGD ON-E) 29.90 -2.00 29.10 30.00
9
859
09 Mar 370.00 (TBZ CN-E)
0
0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0
0
0 09 Mar 360.00 (TBZ OL-E)
0 09 Mar 370.00 (TBZ ON-E)
0.0
0.0
0.0
0.0
0.0
961
0.0
0.0
7
Table 3
GOOG (GOOGLE INC)
364.72 +11.00
Feb 10, 2009 @ 11:20 ET
Bid 364.72 Ask 364.82 Size 2x1 Vol 2039260
Calls
Last
Sale
Net
Bid
Ask Vol
Open
Puts
Int
Last
Net
Sale
Bid
Ask Vol
Open Int
09 Feb 350.00 (GGD BJ-E) 21.70 +8.40 21.30 21.60 181 8056 09 Feb 350.00 (GGD NJ-E)
6.60 -3.90 6.50 6.70 178
1815
09 Feb 360.00 (GGD BL-E) 14.75 +6.55 14.50 14.80 384 5936 09 Feb 360.00 (GGD NL-E)
9.80 -5.60 9.70 9.90 481
1478
09 Feb 370.00 (GGD BN-E)
9.15 +5.05 9.00 9.30 501 5414 09 Feb 370.00 (GGD NN-E) 14.30 -7.50 14.30 14.50 46
569
09 Feb 380.00 (GOP BP-E)
5.15 +3.15 5.20 5.30 296 4972 09 Feb 380.00 (GOP NP-E) 20.10 -9.20 20.20 20.60 93
228
09 Mar 350.00 (GGD CJ-E) 28.75 +6.20 29.50 29.90 31 4685 09 Mar 350.00 (GGD OJ-E) 15.60 -3.90 14.70 15.00 20
1932
09 Mar 360.00 (GGD CL-E) 23.00 +5.60 23.30 23.60 38 3017 09 Mar 360.00 (GGD OL-E) 18.80 -5.00 18.40 18.70 22
631
09 Mar 360.00 (TBZ CL-E)
0
0
09 Mar 370.00 (GGD CN-E) 17.85 +5.25 17.80 18.20 22 3710 09 Mar 370.00 (GGD ON-E) 24.60 -5.30 23.00 23.30 11
859
09 Mar 370.00 (TBZ CN-E)
0.0
0.0
0.0
0
0
0.0
0.0
0.0
09 Mar 380.00 (TBZ CP-E)
0.0
0.0
0.0
0
0 09 Mar 380.00 (TBZ OP-E)
0.0
0.0
1057
0
0 09 Mar 370.00 (TBZ ON-E)
0.0
6
0.0
0
0 09 Mar 360.00 (TBZ OL-E)
0
0.0
0.0
0
0.0
0.0
0.0
0.0
09 Mar 380.00 (GOP CP-E) 13.20 +4.30 13.30 13.50 38 2395 09 Mar 380.00 (GOP OP-E) 28.40 -8.40 28.30 28.70
0.0
0.0
0.0
0.0
0.0
You are bearish on Google and are contemplating three bearish bets: 1) shorting 100 shares of Google, 2)
buying Google option puts, 3) writing Google option calls. Please show all work.
a) (5 points) Suppose you short 100 shares of Google (Table 1) and close your position at Table 2. What is
your profit/ loss? In your answer, be sure to explain the mechanics of shorting a stock.
WHEN SHORTING STOCKS, YOU BORROW THEM, SELL THEM IMMEDIATELY AND
YOUR DEBT IS IN STOCKS - YOU WANT PRICES TO FALL SO THAT YOU CAN BUY
THEM BACK AT A LOWER COST, SQUARE UP YOUR DEBT, AND KEEP THE PROCEEDS
AS PROFIT.
TOTAL REVENUE 100 X $ 370.97 = $37,097
BUY BACK SHARES (COSTS) 100 X $353.72 = $35,372
PROFIT = $ 1,725
b) (5 points) Rather than shorting Google, you decide to buy a Feb 370 put (Table 1) and close on Feb 6
(Table 2). What is your profit/loss and rate of return?
COST OF PUT $1,160
SELL PUT = $ 2,180
PROFIT = $ 1,020 RATE OF RETURN = $ 1,020 / $1,160 = 87.93%
c) (5 points) You write a Feb 370 call (Table 1) and close on Feb 6 (Table 2). What is your profit/loss.?
COLLECT PREMIUM = $ 1,220
BUY BACK OPTION TO CLOSE = $ 410
PROFIT = $ 810
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(30 points total) In the space below, we are going to plot two profit functions on the same graph: one for
the buyer of the Feb 370 put and one for the writer of the Feb 370 put. We open these positions on Feb 4
(Table 1).
Scenario 1): the spot price of Google stays the same as in Table 1 and the option expires. Locate these two
points (one for buyer of put and one for writer of put) and label as points A, clearly labeling the profit or
loss for each. Show all work.
Scenario 2): the spot price of Google stays the same as in Table 2 and the option expires. Locate these two
points (one for buyer of put and one for writer of put) and label as points B, clearly labeling the profit or
loss for each. Show all work.
Scenario 3): the spot price of Google stays the same as in Table 3 and the option expires. Locate these two
points (one for buyer of put and one for writer of put) and label as points C, clearly labeling the profit or
loss for each. Show all work.
Be sure to label the break even point.
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