homework 4.28.14

Finc 340:

Discussion Questions:

1. What is an out-of-the money call option?  

2. What is an option's "premium"?

3. Why are out-of-the money Tesla call options so expensve compared to IBM's?  Both stocks have a similar price, but the Tesla call options have a much larger premium than the IBM call options.  Why?

4. Can you buy call and put options in your IRA account?   Can you *sell* call and put options in your IRA account?

Portfolio Part 5:

Review your portfolio and decide on 3 option trades (at least 1 buy, and 1 sell; and at least 1 put and 1 call trade) you would like to do as part of your portfolio.

Please:

1. Note the trades in full detail (option type, buy or sell, #contracts, expiration date, premium paid or received)

2. Identify for each trade where they add to or subtract from portfolio risk

3. For each option, note what underlying stock prices at the option expiration date would make your portfolio worth the most

4. Conclude whether option trades are worth the risk for your portfolio

Econ 306:

http://connect.mcgraw-hill.com/connect/hmStudentSectionHomePortal.do?sectionId=29455839&showSniffer=true