time series

Question 5 - 10 marks (Equity Options)
It is January 2nd, 2014 and Google Inc. (GOOG) stock is currently trading on the Nasdaq at a price of $1,105.00 US dollars. Using the information provided below, please answer the following questions:
(Note: 'Last' means the last traded price of the put or call option. Use this number for your calculations).

Call options:

Put options:

a) Based on the current stock price, which one of the two options is in the money? by how much? (1 marks)
b) Assume an investor would like to gain exposure to 1000 shares of Google in his equity portfolio. The company's earnings will be released on January 7th, after the market closes, and the investor believes the earnings will be very positive. Using the information provided above, outline two trading strategies for this investor and how much will it cost to execute each strategy? Name one benefit and one drawback associated with each (5 marks)
c) Using put call parity, the data provided and assuming that the 30-day US government treasury bill rate is 0.01%, what should be the price (premium) of a Google put option with a strike price of $1,105 and having a expiry date of January 18th, 2014? (Recall the t-bill rate of 0.01% is an annual rate) (4 marks)

a)
Current Price P = 1,105 call options: K = 1,105 at the money K=P put options: K = 1,115 in the money K > P
Payoff = K – P = 10
b)
1) reverse of writing Covered call
Long call
Short stock
2) Protective put Long put Long stock
c)
c + Ke^-rT = p + S0 k = 1105
S0 = 1105
C = 10
P = 9.9994