1. (30 pts)
Say that on a recent day, Wal Mart stock closed at $55.19 per share, down $.05 on the day.
Consider the following chart giving the premium as of close of trading on that day, on various options on Wal Mart stock: 
WMT (WAL MART STORES INC)

55.19 -0.05

Calls

Last
Sale

14 Aug 42.50 (WMT LV-E)

12.30

0.0 12.65 13.05

0

0.02

0.0

0.0 0.02

0

3194

14 Aug 45.00 (WMT LI-E)

10.15

0.0 10.15 10.60

0

224 14 Aug 45.00 (WMT XI-E)

0.02

0.0

0.0 0.02

45

14141

14 Aug 47.50 (WMT LW-E)

7.56

0.0 7.70 8.10

0

611 14 Aug 47.50 (WMT XW-E)

0.01 -0.03

0.0 0.03

42

16007

14 Aug 50.00 (WMT LJ-E)

5.80

0.0 5.25 5.35 290 5611 14 Aug 50.00 (WMT XJ-E)

0.02 -0.02 0.02 0.03 112

66726

14 Aug 52.50 (WMT LX-E)

3.33 -0.02 2.83 2.89 182 15093 14 Aug 52.50 (WMT XX-E)

0.08 -0.07 0.08 0.11 386

20154

14 Aug 55.00 (WMT LK-E)

0.92 -0.32 0.85 0.89 1672 34325 14 Aug 55.00 (WMT XK-E)

0.59 -0.01 0.58 0.62 2663

27823

14 Aug 57.50 (WMT LY-E)

0.20 -0.08 0.12 0.14 2220 20681 14 Aug 57.50 (WMT XY-E)

1.85 -0.41 2.33 2.38 365

10451

14 Aug 60.00 (WMT LL-E)

0.03 -0.01 0.01 0.04 114

14 Aug 62.50 (WMT LA-E)

0.01

0.0

0.0 0.03

0 20656 14 Aug 62.50 (WMT XA-E)

7.55

14 Aug 65.00 (WMT LM-E)

0.02

0.0

0.0 0.02

0 19428 14 Aug 65.00 (WMT XM-E) 10.43

14 Aug 67.50 (WMT LR-E)

0.01

0.0

0.0 0.02

0 4278 14 Aug 67.50 (WMT XR-E)

14 Aug 70.00 (WMT LN-E)

0.02

0.0

0.0 0.02

0 4431 14 Aug 70.00 (WMT XN-E)

14 Aug 75.00 (WMT LO-E)

0.01

0.0

0.0 0.01

14 Sept 42.50 (WMT AV-E) 12.82
14 Sept 45.00 (WMT AI-E)

Net

Bid

Ask

0.0 13.00 13.15

10.75 +0.45 10.65 10.80

14 Sept 47.50 (WMT AW-E) 8.82 +1.02 8.40 8.55

Vol

Open
Puts
Int
28 14 Aug 42.50 (WMT XV-E)

3589
14 Aug 60.00 (WMT XL-E)
5

Last
Sale

Net

Bid

Ask

Open
Int

30

6125

0.0 7.05 7.35

0

4144

0.0 9.40 9.85

0

2743

10.60

0.0 11.90 12.40

0

763

13.40

0.0 14.40 14.85

0

510

0 1057 14 Aug 75.00 (WMT XO-E) 19.50 +0.25 19.40 19.95

10

20

0.27 -0.11 0.28 0.30 219

3497

0.48 -0.01 0.42 0.45 140

68355

1 4946 14 Sept 47.50 (WMT MW-E) 0.61 -0.09 0.67 0.70 179

31750

0

215 14 Sept 42.50 (WMT MV-E)

55 41905 14 Sept 45.00 (WMT MI-E)

44 68621 14 Sept 50.00 (WMT MJ-E)

4.70 -0.15 4.70 4.80

Vol

14 Sept 50.00 (WMT AJ-E)

6.60 -0.20 6.30 6.40

1.05 -0.04 1.06 1.09 210 119331

14 Sept 52.50 (WMT AX-E)

4.80 -0.15 4.45 4.55 121 3230 14 Sept 52.50 (WMT MX-E)

1.53 -0.18 1.67 1.72

78

3527

14 Sept 55.00 (WMT AK-E)

2.96 -0.34 2.88 2.94 535 49005 14 Sept 55.00 (WMT MK-E)

2.51 -0.06 2.60 2.65 306

49303

14 Sept 57.50 (WMT AY-E)

1.84 -0.12 1.68 1.73 192 4390 14 Sept 57.50 (WMT MY-E)

3.85 -0.05 3.85 4.00

14 Sept 60.00 (WMT AL-E)

0.96 -0.04 0.88 0.92 495 67068 14 Sept 60.00 (WMT ML-E)

5.90

14 Sept 62.50 (WMT AA-E)
14 Sept 65.00 (WMT AM-E)
14 Sept 70.00 (WMT AN-E)

0.04 -0.01 0.03 0.06 150 44079 14 Sept 70.00 (WMT MN-E) 15.75

80

1174

0.0 5.55 5.70

0

67158

0.44 -0.07 0.40 0.44 432 3725 14 Sept 62.50 (WMT MA-E)

7.60 -1.35 7.60 7.70

10

244

0.18 -0.03 0.18 0.21

9.30 -1.33 9.85 10.00

5

17887

0

1319

64 82933 14 Sept 65.00 (WMT MM-E)

0.0 14.70 14.85

14 Sept 75.00 (WMT AO-E)

0.01 -0.02 0.01 0.03

10 3546 14 Sept 75.00 (WMT MO-E) 20.50

0.0 19.35 19.95

0

In the questions that follow, use the Last Sale column to answer questions which
involve option pricing.
(5 pts each)
a. What was the premium on the 14 Sept. WMT 47.50 call, i.e., the Wal Mart call
which expires in Sept. 2014 and has a strike price of $47.50?
b. How much would an investor who wanted to buy 1 contract of the 14 Sept.
WMT 47.50 call option have had to spend?
c. What is the formula for the intrinsic value of a call? What was the intrinsic value
of the 14 Aug. WMT 50 call? Was this option in the money or out of the
money? What was the time value of this option?
d. Was the 14 Sept. WMT 60 call in or out of the money? What was the intrinsic
value of this option? What was the time value of this option?
e. What was the premium on the 14 Sept. WMT 60 put? Was this option in or out
of the money? What was the intrinsic value of this put? What is the time value?
f. What was the intrinsic value of the 14 Aug. WMT 50 put? Was this option in or
out of the money? What was the options time value?
2. (20 pts)
On a recent day, Microsoft stock (symbol: MSFT) was at $25. Assume the nearby
MSFT 25 call was selling for $1. Draw a hockey stick diagram for a long position in
the MSFT 25 call.

259

3. (40 pts)
[Note: Youll find this is a trick question ]
If the MSFT 24 call is selling for $2.50, and the MSFT 25 call is selling for $1,
construct a bull spread using these calls.
a. (20 pts)
Construct a table like the ones we did in class showing profit and loss at relevant
stock prices for each part of the spread, and the net profit or loss for the entire
spread position.
b. (20 pts)
Draw a hockey stick diagram for the spread, clearly labeling all the critical points.
4. (10 pts)
Consider a long strangle constructed from options which have an expiration date of
August 15, 2014 (the third Friday in August). The following table displays the
possible prices of Boeing stock on August 15, as well as the payoffs accruing to
someone who holds a long strangle on Boeing stock:
Probability
0.2
Stock price $80
Gain from
$15
long strangle

0.3
$90
$5

0.2
$100
$0

0.2
$110
$10

0.1
$120
$20

A long strangle is created using two options. For each option in the strangle above,
indicate whether it is a put or a call, whether it is bought or sold, and calculate what
its strike price is. Explain your answer.