Suppose Amazon stock is trading for $ 495 per share, and Amazon pays no dividends. a. What is the maximum possible price of a call option on Amazon? b. What is the maximum possible price of a put option on Amazon with a strike price of $ 530 ? c. What is the minimum possible value of a call option on Amazon stock with a strike price of $ 465 ? d. What is the minimum possible value of an American put option on Amazon stock with a strike price of $ 565 ?

a) $ 495

b) $ 530

c) $ 30

d) $ 70

Explanation:

Given:

Stock price = $ 495

Strike prize = $ 530

a) The maximum possible price of a call option on Amazon is the stock price,

thus, the answer is $ 495

b) the maximum possible price of a put option on Amazon is the strike prize, thus, the answer is $ 530

c) given:

strike price = $ 465

now,

Minimum possible value of call option is given as:

⇒ Stock price - strike price

on substituting the values, we get

⇒ $ 495 - $ 465

or

⇒ $ 30

thus,

answer is $ 30

d) Given:

strike price = $ 565

Minimum possible value of an american put option on amazon stock is calculated as:

⇒ Strike price - stock price

on substituting the values, we get

⇒ $ 565 - $ 495

or

= $ 70

hence, the answer is $ 70