A four-month call option contract on 100 shares of Bayer AG common stock with a strike price
Question:
A four-month call option contract on 100 shares of Bayer AG common stock with a strike price of €60 can be purchased for €600. Assuming that the market price of Bayer AG stock rises to €75 per share by the expiration date of the option, what is the call holder’s profit? What is the holding period return?
Step by Step Answer:
Calculations The call holders profit is equal to the market pric...View the full answer
Fundamentals Of Investing
ISBN: 9780135175217
14th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
Related Video
A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.
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