Suppose that mid-east terrorists crashed a stolen corporate jet full of nerve gas into Disneyworld.
a) Explain the likely effects of this event on the intrinsic value of S&P 500 stock index call options that had a strike price equal to the value of the Index just prior to the attack.
b) Suppose that the options mentioned in (a) were due to expire two months after the terrorist attack. Explain the effects of the attack on the Time Value of call options on the S&P 500 index immediately after the attack. Draw a diagram to illustrate your answer.