You hold an American call option with a $30 strike price on a stock that sells at
Question:
You hold an American call option with a $30 strike price on a stock that sells at $35. The option sells for $5 one year before expiration. Compare the cash flows at expiration from (1) exercising the option now and putting the $5 proceeds in a bank account until the expiration date and (2) holding onto the option until expiration, selling short the stock, and placing the $35 you receive into the same bank account.
AppendixLO1
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Financial Markets And Corporate Strategy
ISBN: 9780077119027
1st Edition
Authors: David Hillier, Mark Grinblatt, Sheridan Titman
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