Go to the Montreal Exchange website (https://www.mx.ca/accueil_en.php) and under “Trading” click on
“Reports”, then select “Historical Data”. Select Options and obtain the Option quote for Shoppers Drug Mart
(Symbol SC) for March 18, 2014 (Date interval 03/18/14 to 03/18/14). Use the quotes obtained for this date to
answer the following questions. You do not have to download the quote (can just use “display”). Use the
“ASK” prices to answer all questions.
a) What would an investor have to pay to purchase Shoppers Drug Mart shares on March 18, 2014?
b) Are the 14 Apr 54 call and put options inthemoney, atthemoney or outof themoney?
c) Compute the time value and intrinsic value for the following call and put options:
Calls: 14 Apr 58, 14 Apr 60 and 14 Apr 62 options
Puts: 14 Apr 58, 14 Apr 60 and 14 Apr 62 options
d) Suppose you buy a share of Shoppers Drug Mart at the market price on March 18, 2014 and hold your
position. Calculate your net profit/loss given the following stock prices: S = 50, 55, 60, 65, 70, 75 and 80.
Sketch your profit/loss graph for your share ownership.
e) Suppose you take the long position (ie. buy) in one 14 April 56 call option on Shoppers Drug Mart and
hold your position to the expiry date. Calculate your net profit/loss given the following stock prices: S = 40, 45,
50, 55, 60, 65, 70 and 75. Sketch your profit/loss graph from ownership and include the breakeven share
price(s).
f) Suppose you take the short position (ie. sell) in one 14 Jul 64 put and hold your position to the expiry date.
Calculate your net profit/loss given the following stock prices: S = 50, 55, 60, 65, 70, 75, 80 and 80. Sketch
your profit/loss graph from ownership and include the breakeven share price(s).
g) Suppose you take the long position (ie. buy) in one 14 April 60 put option while holding the share you
purchased in part d and hold your position to the expiry date. Calculate your net profit/loss given the
following stock prices: S = 50, 55, 60, 65, 70, 75, 80 and 90. Sketch your profit/loss graph from ownership and
include the breakeven share price(s).
h) What is the maximum possible loss if you do this strategy (part g)? Why would an investor choose this
strategy versus just buying the share?
i) Suppose you take the long position (ie. buy) in one 14 Jul 58 call option and one 14 Jul 58 put option and
hold your position to the expiry date. Calculate your net profit/loss given the following stock price: S = 40, 45,
50, 55, 60, 65, 70 and 75. Sketch your profit/loss graph from ownership and include the breakeven share
price(s).
j) Why would an investor select this strategy (part i) ?
k) Suppose you take the short position (ie. write) in one 14 Apr 60 call option and two 14 Apr 60 put
options and hold your position to the expiry date. Calculate your net profit/loss given the following stock
prices: S = 50, 55, 60, 65, 70, 75, 80 and 85. Sketch your profit/loss graph from ownership and include the
breakeven share price(s).
l) Suppose you take the long position (ie. buy) in two 14 Jul 60 call options and one 14 Jul 58 put option
and hold your position to the expiry date. Calculate your net profit/loss given the following stock prices: S =
45, 50, 55, 60, 65, 70, 75, 80, 85, and 90. Sketch your profit/loss graph from ownership and include the
breakeven share price(s).
