(Call option buying and selling) David wants to buy a call option written on Raider Corporation stock. Patrick is willing to sell David a call option on Raider stock with an exercise price of $50 for $8.20. The option will mature in exactly 1 year. The current market price for Raider stock is $50.

a. Determine and graph the payoffs of both David and Patrick’s respective positions.

b. For what stock price ST is the profit of both David and Patrick zero?

Transcribed Image Text:

A 1 Call price B C 8.20 2 Raider stock price Patrick's David's 345678 at option expiration, ST profit profit 0 10 20 30 88 40 9 50 10 60 11 12 13 123 70 80 90 14 100