AA Company: Price 35 Puts -You Want the Right to Sell 700 Shares of AA

question 39

Multiple Choice

AA Company: Price 35.20

Calls:

$\begin{array}{|r|r|r|r|r|r|r|r|}\hline \text { Strike } & \text { Symbol } & \text { Last } & \text { Change } & \text { Bid } & \text { Ask } & \text { Volume } & \text { Open Int. } \\\hline 27.50 & \text { AAEY } & 7.70 & +0.28 & 7.70 & 7.80 & 2 & 289 \\\hline 30.00 & \text { AAEF } & 5.20 & +0.36 & 5.20 & 5.30 & 453 & 1,306 \\\hline 32.50 & \text { AAEZ } & 2.80 & +0.30 & 2.75 & 2.80 & 520 & 3,609 \\\hline 35.00 & \text { AAEG } & 0.45 & +0.20 & 0.40 & 0.50 & 656 & 5,372 \\\hline\end{array}$

Puts:

$\begin{array}{|r|l|r|r|r|r|r|r|}\hline \text { Strike } & \text { Symbol } & \text { Last } & \text { Change } & \text { Bid } & \text { Ask } & \text { Volume } & \text { Open Int. } \\\hline 35.00 & \text { AAQG } & 0.30 & -0.20 & 0.25 & 0.30 & 19 & 1.607 \\\hline 37.50 & \mathrm{AAQS} & 2.35 & -1.30 & 2.30 & 2.40 & 11 & 114 \\\hline 40.00 & \mathrm{AAQH} & 4.80 & -0.10 & 4.80 & 4.90 & 2 & 13 \\\hline\end{array}$
-You want the right to sell 700 shares of AA stock at a price of $35 a share. How much will it cost you to establish this option position?

• A) $175
• B) $210
• C) $245
• D) $280
• E) $350

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Definitions:

Equilibrium Price

The charge where the amount of merchandise supplied equals the amount consumers are willing to purchase.

Inelastic Demand

A situation where the demand for a product does not significantly change with a change in price.

Elastic Supply

A situation where the supply of a good changes significantly when its price changes.

Tax Burden

The measure of the impact of taxation on an individual's or entity's income, assets, or purchasing power.