Finance Case Study 3 Investing In Options
Case Study 3: Investing in Options
1.
A. The put option contract “AAPL171117P00175000” has a strike price closest to being at the money at $175. The current share price of AAPL is = $174.25. The current price for the put option is = $298 (2.98*100). B.
The put contracts which have a strike price greater than the current share price are in the money. These are contracts whose strike price is greater than $174.25, which is the current share price of AAPL. The put contracts that have a strike price lower than $174.25 are out of the money. The relationship isn’t perfectly linear because the data is messy and includes a lot of anomalies. Although, the price of the put has a correlation of .717 with the strike price. So this proves that
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The correlation between put options in January and strike price is .811. This exhibits a stronger relationship than November and contracts with same strike prices will be costlier if they expire in January. This can be seen in the graph below where the January points are a little above November proving that buying the contracts with exact strike prices in January is costlier than November. This is due to the positive relation between the price of the put contract and maturity date. Also, it shows that prices for AAPL don’t diverge between November and January.
2.
A. One put contract with a strike price of $165 will cost ($2.85*100) = $285.
B. HPR = Strike Price – Stock Price – Put Price / Put Price HPR = (165 – 150 – 2.85) / 2.85 = 426.32%
C.
The put option’s return and share price are slightly inverse. The return of the put contract decreases and stock prices of AAPL increases. The reason it isn’t completely inverse is because as the graph reaches the strike price, the return equals to -100%. This is due to the put option and the insurance it provides so the investor will only lose $285 which is the put contract price.
3.
A. Net cost of portfolio today 100 shares of AAPL = $174.25 x 100 =
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