FIGURE 2.10 Stock options on Microsoft, September 4, 2019

Expiration	Strike	Call	Put
27-September-2019	130	8.65	1.03
27-September-2019	135	4.82	2.17
27-September-2019	140	1.99	4.35
15-November-2019	130	11.50	3.55
15-November-2019	135	8.12	5.15
15-November-2019	140	5.32	7.40
Note: Microsoft stock price on this day was $137.49.
Source: Compiled from data downloaded from Yahoo! Finance.a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

To calculate the **rate of return** on your position, we need to know the specific trade you made (e.g., buying a call option, selling a put option, etc.), the cost of that position, and the value it has after changes in the stock price.

However, I'll assume a hypothetical position for explanation purposes. Let’s assume you bought a **call option** for **Microsoft** with a **strike price of 135** expiring on **27-September-2019**. Here’s how we can calculate the return:

1. **Call option price (cost)** on September 4, 2019: $4.82 (per share), so the total cost for 1 contract (representing 100 shares) would be:

   \[
   \text{Cost} = 4.82 \times 100 = 482 \text{ USD}
   \]

2. **Microsoft stock price on September 27, 2019**: Let’s assume it’s $140. At expiration, the value of a call option equals the difference between the stock price and the strike price (if in-the-money):

   \[
   \text{Value at expiration} = (140 - 135) \times 100 = 500 \text{ USD}
   \]

3. **Profit from the position**:

   \[
   \text{Profit} = \text{Value at expiration} - \text{Cost} = 500 - 482 = 18 \text{ USD}
   \]

4. **Rate of return**:

   \[
   \text{Rate of return} = \frac{\text{Profit}}{\text{Cost}} \times 100 = \frac{18}{482} \times 100 \approx 3.73\%
   \]

Thus, the **rate of return** on this hypothetical position would be **3.73%**.

If you had a different type of position or a different option, let me know and I can adjust the calculation accordingly.

Would you like more details or have any specific questions?  
Here are 5 related questions you might find helpful:

1. How does the stock price affect the value of call and put options?
2. What is the difference between intrinsic and extrinsic value in options pricing?
3. How does the expiration date influence the time decay of an option?
4. What factors determine the premium of an option?
5. What is the maximum loss and gain on a call option?

**Tip**: When buying options, always consider implied volatility and time decay (theta) since they can significantly impact the option’s price over time.

What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Learn how to calculate the rate of return on a Microsoft call option with a strike price of 135 expiring on 27-September-2019. This example walks through the calculation step-by-step, showing the relationship between stock price, option cost, and profit. The solution includes essential finance concepts like rate of return and options pricing, suitable for college-level finance students.

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