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Suppose You Look in the Newspaper and See IBM Trading

question 149

Essay

Suppose you look in the newspaper and see IBM trading at $250 per share. Calls on IBM with one month to expiration and an exercise price of $245 are trading at $6.50 each. Puts on IBM with one month to expiration and an exercise price of $255 are trading at $3.50 each. Are these prices reasonable? Explain. (Ignore transactions costs).


Definitions:

Center of Gravity

The point in an object where its mass is concentrated, and around which its weight is evenly dispersed when in a uniform gravitational field.

Base of Support

The area beneath an object or person that provides support and stability.

Narrows

A geographical feature where a body of water is constricted between two landforms.

Bedridden

A state in which a person is unable to rise from bed due to illness or disability.

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