Question

Amazon Inc. (AMZN) currently trades for $110 a share. A 3-month at-the-money call option on AMZN trades for $10. All options are European and AMZN pays no dividends. The interest rate is 3% with continuous compounding.

a. What is the adjusted intrinsic value of the 3-month call option?
b. What is the price of a 3-month at-the-money put option on AMZN?
c. If the put option in (b) is trading for $10, is there an arbitrage opportunity and if so,
what securities would you buy and/or sell to take advantage of it?

Answer 1

To calculate the net profit from stock transactions, subtract the total purchase cost and the transaction fee from the total sales proceeds for each stock. The examples provided include stock from Nike, Panda Express, and Wal Mart, each with different purchase and current prices, as well as transaction fees.

Step-by-step explanation:

Calculating Net Profit from Stock Transactions

To calculate the net profit from each stock transaction, you must consider both the original purchase price and the current price of the stock, as well as the transaction fee charged by the stock company. Here are the calculations for each provided example:

1. Net Profit for Nike: Purchase price was 1000 shares at $24.50 each, with a current price of $39.75 per share. The transaction fee is $9.99. Net profit is calculated as (1000 shares * $39.75) - (1000 shares * $24.50) - $9.99.
2. Net Profit for Panda Express: Purchase price was 800 shares at $13.50 each, with a current price of $23.25 per share. The transaction fee is $10. Net profit is calculated as (800 shares * $23.25) - (800 shares * $13.50) - $10.
3. Net Profit for Wal Mart: Purchase price was 1200 shares at $35.50 each, with a current price of $58.75 per share. The transaction fee is $12.99. Net profit is calculated as (1200 shares * $58.75) - (1200 shares * $35.50) - $12.99.

Please note that these calculations assume that all shares are sold in a single transaction, and thus only one transaction fee is applied.