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Question 24.1: Looking at Table 24.1, suppose you buy 10 CSCO January 25 pu...

Looking at Table 24.1, suppose you buy 10 CSCO January 25 put contracts. How much does this cost (ignoring commissions)? Just before the option expires, CSCO is selling for $21.50 per share. Is this good news or bad news? What is your net profit?

TABLE 24.1 A Sample Wall Street Journal (Online) Option Quotation for Cisco Systems (CSCO)
January, 2018
Expires January 19, 2018
Calls Puts
Last Chance Bid Ask volume Open Int. Strike Last Chance Bid Ask Volume Open Int.
17.15 -0.10 18.00 19.80 24 29 13.00 0.07 -0.02 0.06 0.07 5 2480
16.10 +1.10 17.20 17.40 1 212 15.00 0.11 -0.02 0.10 0.13 10 3559
13.26 +1.06 13.00 14.80 10 389 18.00 0.21 -0.03 0.19 0.23 338 7331
12.00 +0.50 11.40 12.60 5 937 20.00 0.31 -0.01 0.30 0.32 25 11970
9.25 +0.25 8.70 9.50 50 3253 23.00 0.52 0.48 0.52 656 21567
7.28 +0.51 6.85 7.70 111 6443 25.00 0.76 -0.01 0.72 0.76 664 19264
5.45 -0.12 5.80 5.95 55 6553 27.00 1.12 -0.02 1.09 1.11 491 41442
3.60 +0.20 3.60 3.70 565 19847 30.00 1.96 -0.10 1.93 1.97 918 21101
2.46 +0.19 2.44 2.53 860 25952 32.00 2.93 -0.02 2.76 2.82 147 3104
Last Trade       32.31      as of 02/14/17 4:00 PM ET
1.20 +0.10 1.21 1.29 488 42290 35.00 5.40 -0.40 4.55 4.65 16 1743
0.70 +0.06 070 0.77 176 6791 37.00 7.00 -0.85 6.00 6.25 10 76
0.29 +0.04 0.29 0.33 15 6122 40.00 9.35 +0.10 8.55 9.50 24 38
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The option is quoted at $.76, so one contract costs 100 × $.76 = $76. Your 10 contracts total $760. You now have the right to sell 1,000 shares of CSCO for $25 per share. If the stock is currently selling for $21.50 per share, then this is most definitely good news. You can buy 1,000 shares at $21.50 and sell them for $25. Your puts are worth $25 − 21.50 = $3.50 per share, or $3.50 × 1,000 = $3,500 in all. Because you paid $760, your net profit is $3,500 −760 = $2,740.

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