Options with market-related conditions : The stock options for which compensation plans are based on the market-related targets like stock price of the option exceeding the index, are referred to market-related options. To determine : The compensation expense of stock options for each of the three years

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Chapter 19, Problem 19.11BE

To determine

Options with market-related conditions: The stock options for which compensation plans are based on the market-related targets like stock price of the option exceeding the index, are referred to market-related options.

To determine: The compensation expense of stock options for each of the three years

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Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What will be the total cash settlement by the option writer if the Apple share price expires at $120 per share in June 2023? (v) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Apple shares are selling for $250?

Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? Explain your reasoning. (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What will be the total cash settlement by the option writer if the Apple share price expires at $120 per share in June 2023? (v) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and…

Question 6 In January 2024, Amazon shares were priced at $80 a share. You believe that they are overvalued and are worth only $30 a share. June 2024 put options on a strike price of $60 a share are currently valued at $5. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Amazon shares selling for $30, what is your net dollar profit on a single put options contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Amazon shares are selling for $100?