Question 21.1: It is August 21, 2013, and you have decided to purchase 10 S...
It is August 21, 2013, and you have decided to purchase 10 September call contracts on Amazon’s stock with an exercise price of $285. Because you are buying, you must pay the ask price. How much money will this purchase cost you? Is this option in-the-money or out-of-the-money?
PLAN
From Table 21.2, the ask price of this option is $5.70. Remember that the price quoted is per share and that each contract is for 100 shares.
TABLE 21.2 Option Quotes for Amazon.com Stock
The description of each traded option can be read as: year and month of expiration, followed by the strike price, followed by an identifier for the particular option series in parentheses. For example, the first call listed expires in September 2013 and has an exercise price of 265.00.
AMZN (AMAZON.COM INC) 284.57 -2.52
Aug 21 2013 @ 16:21 ET
| Calls | Last Sale | Net | Bid | Ask | Vol | Open Int | Puts | Last Sale | Net | Bid | Ask | Vol | Open Int |
| 13 Sep 265.00 | 0.00 | 0.00 | 19.80 | 21.10 | 0 | 0 | 13 Sep 265.00 | 0.72 | -0.50 | 0.72 | 0.85 | 1 | 115 |
| 13 Sep 270.00 | 17.10 | -1.00 | 15.20 | 16.45 | 3 | 5 | 13 Sep 270.00 | 1.13 | +0.18 | 1.22 | 1.40 | 10 | 132 |
| 13 Sep 275.00 | 14.25 | 0.00 | 11.70 | 12.20 | 0 | 26 | 13 Sep 275.00 | 1.93 | +0.17 | 2.05 | 2.29 | 31 | 116 |
| 13 Sep 280.00 | 8.81 | -2.74 | 8.15 | 8.65 | 6 | 56 | 13 Sep 280.00 | 2.96 | +0.35 | 3.35 | 3.70 | 1 | 163 |
| 13 Sep 285.00 | 6.35 | -0.25 | 5.25 | 5.70 | 147 | 158 | 13 Sep 285.00 | 4.75 | +0.20 | 5.45 | 5.75 | 21 | 212 |
| 13 Sep 290.00 | 3.30 | -2.00 | 3.10 | 3.45 | 3 | 144 | 13 Sep 290.00 | 7.10 | +0.70 | 8.25 | 8.65 | 40 | 171 |
| 13 Sep 295.00 | 2.19 | -0.81 | 1.72 | 1.89 | 24 | 233 | 13 Sep 295.00 | 10.00 | 0.0 | 11.80 | 12.20 | 0 | 111 |
| 13 Sep 300.00 | 1.00 | -0.43 | 0.89 | 1.07 | 12 | 334 | 13 Sep 300.00 | 15.30 | 0.0 | 15.75 | 16.55 | 0 | 316 |
| 13 Sep 305.00 | 0.50 | -0.34 | 0.50 | 0.59 | 25 | 229 | 13 Sep 305.00 | 11.80 | 0.0 | 18.50 | 21.50 | 0 | 54 |
EXECUTE
You are purchasing 10 contracts and each contract is on 100 shares, so the transaction will cost 5.70 \times 10 \times 100 = $5700 (ignoring any commission fees). Because this is a call option and the exercise price is above the current stock price ($284.57), the option is currently out-of-the-money.
EVALUATE
Even though the option is currently out-of-the-money, it still has value. During the time left to expiration, the stock could rise above the exercise (strike) price of $285.