FROM HW 1 Fall semester 2014

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 Sale / Net / Bid / Ask / Vol / Open Int / Puts / Last Sale / Net / Bid / Ask / Vol / Open 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) / 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 / 09 Mar 360.00 (TBZ OL-E) / 0.0 / 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 / 09 Mar 390.00 (TBZ OR-E) / 0.0 / 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 Int / Puts / Last Sale / Net / Bid / Ask / Vol / Open 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) / 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 / 961
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 / 0.0 / 0 / 0 / 09 Mar 360.00 (TBZ OL-E) / 0.0 / 0.0 / 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 / 09 Mar 370.00 (TBZ ON-E) / 0.0 / 0.0 / 0.0 / 0.0 / 0 / 0

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 Int / Puts / Last Sale / Net / 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 / 0.0 / 0.0 / 0.0 / 0 / 0 / 09 Mar 360.00 (TBZ OL-E) / 0.0 / 0.0 / 0.0 / 0.0 / 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 / 09 Mar 370.00 (TBZ ON-E) / 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 / 6 / 1057
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

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.

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?

c) (5 points) You write a Feb 370 call (Table 1) and close on Feb 6 (Table 2). What is your profit/loss.?

(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 pointsB, 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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