## 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?

Concept

## Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

Get My Free Ebook