Given the following: Price of the stock ......... $18 Price of a three-month call at $20 .........

Question:

Given the following:

Price of the stock ......... $18

Price of a three-month call at $20 ......... 2

Price of a three-month call at $15 .........5

a) What is the profit (loss) at the expiration date of the options if the price of the stock is $14, $20, or $25 and if the investor buys the option with the $20 strike price and sells the other option?

b) Compare the profit (loss) from this strategy with shorting the stock at $18.

c) What is the profit (loss) at the expiration date of the options if the price of the stock is $14, $20, or $25 and if the investor buys the option with the $15 strike price and sells the other option?

d) Compare the profit (loss) from this strategy with buying the stock at $18.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.