Figure 211

Listing of stock option quotations

Source: From The Wall Street Journal, October 19, 2001. Reprinted by permission of Dow Jones & Company, Inc. via Copyright Clearance Center, Inc. © 2001 Dow Jones & Company, Inc. All Rights Reserved Worldwide.

The next four columns provide the trading volume and closing prices of each option. For ex-ample,16,292 contracts traded on the October expiration call with an exercise price of $100. The last trade was at $1.80, meaning that an option to purchase one share of IBM at an exercise price of $100 sold for $1.80. Each option contract (on 100 shares of stock), therefore, costs $1.80 X 100 = $180.

Notice that the prices of call options decrease as the exercise price increases. For example, the October 2001 maturity call with exercise price $105 costs only $.20. This makes sense, as the right to purchase a share at a higher exercise price is less valuable. Conversely, put prices increase with the exercise price. The right to sell a share of IBM in October at a price of $100 costs $0.80 while the right to sell at $105 costs $4.

Option prices also increase with time until expiration. Clearly, one would rather have the right to buy IBM for $100 at any time until November than at any time until October. Not surprisingly, this shows up in a higher price for the November expiration options. For example, the call with exercise price $100 expiring in November sells for $5.20, compared to only $1.80 for the October call.

6. What would be the profit or loss per share of stock to an investor who bought the October maturity IBM call option with exercise price $100, if the stock price at the expiration of the option is $104? What about a purchaser of the put option with the same exercise price and maturity?


Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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